As filed with the Securities and Exchange Commission on November 12, 2010.

Registration No. 333-169980          

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Pre-Effective Amendment No. 1 to

FORM S-1

REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933

HAMPTON ROADS BANKSHARES, INC.

(Exact name of registrant as specified in its charter)

Virginia		6021		54-2053718
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

999 Waterside Drive, 2^nd Floor
Norfolk, Virginia 23510
(757) 217-1000
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

John A.B. Davies, Jr.
President and Chief Executive Officer
Hampton Roads Bankshares, Inc.
999 Waterside Drive, 2^nd Floor
Norfolk, Virginia 23510
(757) 217-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copies of Communications to:
William A. Old, Jr., Esq. Williams Mullen 999 Waterside Drive, Suite 1700 Norfolk, Virginia 23510 (757) 622-3366		Hampton Roads Bankshares, Inc. 999 Waterside Drive, 2nd Floor Norfolk, Virginia 23510 Attention: Douglas J. Glenn Executive Vice President, General Counsel and Chief Operating Officer (757) 217-3634

     Approximate date of commencement of proposed sale to the public: As soon as practicable following the effectiveness of this Registration Statement.

     If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. þ

     If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer þ		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

PROSPECTUS

Up to 100,000,000 Shares of

Common Stock

          Hampton Roads Bankshares, Inc. (the “Company”) is the parent company of the sixth largest Virginia-domiciled commercial bank, Bank of Hampton Roads. Through our network of 60 financial centers and 72 ATMs, we emphasize personalized customer service and provide a full range of financial products targeting the needs of individuals and small to medium sized businesses in our primary market areas, which include Hampton Roads, Virginia, the Northeastern, Southeastern and Research Triangle regions of North Carolina and Richmond, Virginia.

          We are distributing, at no charge, to holders of our common stock, par value $0.01 per share (the “Common Stock”), non-transferable subscription rights to purchase up to 100,000,000 shares of our Common Stock at a price of $0.40 per share in this rights offering (the “Rights Offering” and each subscription right, a “Right”). You will receive one Right for each share of Common Stock held by you of record as of 5:00 p.m., Eastern Time, on September 29, 2010 (the “Record Date,” and each holder of our Common Stock as of the Record Date, an “Eligible Shareholder”¹). Each Right will entitle you to purchase 2.2698 shares of Common Stock at a subscription price of $0.40 per share (the “Basic Subscription Right”) and an over-subscription privilege. If you hold a Right and fully

exercise your Basic Subscription Right, you may also subscribe for an unlimited additional whole number of common shares pursuant to the over-subscription privilege, subject to availability, provided that (i) no Eligible Shareholder shall thereby exceed, together with any other person with whom such shareholder may be aggregated under applicable law, 4.9% beneficial ownership of the Company’s equity securities and (ii) the aggregate purchase price of all common shares purchased in the Rights Offering shall not exceed $40 million. If the Rights Offering is over-subscribed, we will allocate the available shares pro rata in proportion to the number of shares of our Common Stock each of those shareholders owned on the Record Date. For additional details regarding the pro rata allocation process, see “Questions and Answers Relating to the Rights Offering — What is the over-subscription privilege?” The Rights Offering will expire at 5:00 p.m., Eastern Time, on December 10, 2010.

          Certain institutional Investors,² have entered into Investment Agreements³ with the Company pursuant to which the Investors have agreed to backstop the Rights Offering by purchasing from us, at the subscription price, any shares not purchased by our existing stockholders. Please see “Questions and Answers Relating to the Offering — How does the backstop commitment work?” These commitments are subject to the terms and conditions of the Investment Agreements. Please see “Questions and Answers Relating to the Offering — Why are we conducting the Rights Offering” beginning on page S-7 of this Prospectus. This offering is being made directly by us. We are not using an underwriter or selling agent.

          Registrar and Transfer Company is our subscription agent for the Rights Offering.

          Our Common Stock is traded on the NASDAQ Global Select Market under the symbol “HMPR.” On October 12, 2010, the closing price for our Common Stock was $0.96 per share. Subscription rights will not be listed for trading on The NASDAQ Global Select Market or any other stock exchange or market.

          Investing in our Common Stock involves risks. You should read the “Risk Factors” section beginning on page S-22 before buying shares of our Common Stock.

          Neither the Securities and Exchange Commission nor any state securities commission or other regulatory body has approved or disapproved of the Common Stock or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

          In addition, shares of our Common Stock are not deposit accounts and are not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.

		Per Share				Total (*)
Subscription price		$	0.40			$	40,000,000
Estimated expenses						$	247,852
Proceeds, before expenses, to Hampton Roads Bankshares, Inc.		$	0.40			$	40,000,000

The date of this prospectus is _, 2010.

TABLE OF CONTENTS

		Page
About this Prospectus			S-4
Incorporation by Reference			S-4
Questions and Answers Relating to the Offering			S-6
Prospectus Summary			S-15
Risk Factors			S-22
Caution About Forward-Looking Statements			S-36
Plan of Distribution			S-39
Use of Proceeds			S-40
Market for Common Stock and Dividend Policy			S-41
Capitalization and Pro Forma Financial Information			S-43
Summary Consolidated Financial Data			S-45
Management’s Discussion and Analysis of Financial Condition and Results of Operations			S-48
Business			S-63
Legal Proceedings			S-83
Directors, Executive Officers and Corporate Governance			S-84
Beneficial Ownership of Directors, Officers and Principal Shareholders of the Company			S-89
Executive Compensation			S-96
Description of Capital Stock			S-115
The Rights Offering			S-124
Certain U.S. Federal Income Tax Consequences			S-130
Legal Matters			S-134
Experts			S-134
Where You Can Find More Information			S-134
Index to Consolidated Financial Statements			F-1

ABOUT THIS PROSPECTUS

          You should only rely on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of our Common Stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of Common Stock.

          In this prospectus, we frequently use the terms “we,” “our” and “us” to refer to Hampton Roads Bankshares, Inc. and its subsidiaries. To understand the offering fully and for a more complete description of the offering you should read this entire document carefully, including particularly the “Risk Factors” section beginning on page S-22.

INCORPORATION BY REFERENCE

          The Securities and Exchange Commission (the “SEC”) allows us to “incorporate by reference” the information that we file with it, which means that we can disclose important information to you by referring you to other documents. The information incorporated by reference is an important part of this Prospectus. We incorporate by reference the following documents (other than information furnished rather than filed):

	•		the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as amended;
	•		the Company’s Quarterly Reports on Forms 10-Q for the fiscal quarter ended March 31, 2010, as amended, June 30, 2010 and September 30, 2010;
	•		the Company’s Current Reports on Form 8-K filed on January 6, 2010, February 10, 2010, February 17, 2010, April 7, 2010, April 23, 2010 (two (2) separate Current Reports on Form 8-K were filed on this day), May 19, 2010, May 24, 2010, May 27, 2010, June 7, 2010 (two (2) separate Current Reports on Form 8-K were filed on this day), June 10, 2010 (as amended on June 11, 2010), June 14, 2010 (two (2) separate Current Reports on Form 8-K were filed on this day), June 17, 2010, July 1, 2010, July 7, 2010, July 12, 2010, July 13, 2010, July 27, 2010, August 10, 2010 (two (2) separate Current Reports on Form 8-K were filed on this day), August 12, 2010, August 17, 2010, August 18, 2010; August 30, 2010, September 14, 2010, September 17, 2010, September 23, 2010, September 24, 2010, September 28, 2010, September 30, 2010, October 4, 2010, October 5, 2010, October 13, 2010, October 25, 2010, October 29, 2010, November 1, 2010, November 2, 2010 and November 4, 2010 (other than the portions of those documents furnished or not otherwise deemed to be filed);
	•		the Company’s Definitive Proxy Statement related to its 2010 annual meeting of shareholders, as filed with the SEC on August 30, 2010; and
	•		the description of our Common Stock set forth in our Registration Statement on Form 8-A filed August 2, 2006 pursuant to Section 12(b) of the Exchange Act, including any amendment or report filed with the SEC for the purpose of updating this description.

          We will provide without charge, upon written or oral request, a copy of any or all of the documents that are incorporated by reference into this Prospectus and a copy of any or all other contracts or documents which are referred to in this Prospectus. Requests should be directed to: Douglas J. Glenn, Executive Vice President, General Counsel, and Chief Operating Officer at Hampton Roads Bankshares, Inc., 999 Waterside Dr., Suite 200, Norfolk, Virginia 23510.

QUESTIONS AND ANSWERS RELATING TO THE OFFERING

          The following are examples of what we anticipate will be common questions about the offering. The answers are based on selected information included elsewhere in this prospectus. The following questions and answers do not contain all of the information that may be important to you and may not address all of the questions that you may have about the offering. This prospectus and the documents incorporated by reference into this prospectus contain more detailed descriptions of the terms and conditions of the offering and provide additional information about us and our business, including potential risks related to the offering, the shares of our Common Stock offered hereby and our business.

What is the Rights Offering?

          We are distributing, at no charge, to holders of our shares of Common Stock, non-transferable subscription rights to purchase shares of our Common Stock at a price of $0.40 per whole share. You will receive such rights if you owned Common Stock as of 5:00 p.m., Eastern Time, on September 29, 2010, the Record Date. Each subscription right consists of a Basic Subscription Right and an over-subscription privilege, as described below. You will receive one subscription right for each share of Common Stock that you owned on the Record Date.

What is the Basic Subscription Right?

          The Basic Subscription Right gives our shareholders the opportunity to purchase 2.2698 new shares of Common Stock for each existing share of Common Stock owned on the Record Date at a subscription price of $0.40 per share. You may exercise your subscription rights, or you may choose not to exercise any subscription rights at all. We will issue a total of 100,000,000 shares of Common Stock in the Rights Offering, including any shares purchased pursuant to the backstop commitment.

     If you hold a Hampton Roads Bankshares stock certificate, the number of shares you may purchase pursuant to your Basic Subscription Rights is indicated on the enclosed rights certificate. If you hold your shares in the name of a broker, dealer, custodian bank or other nominee who uses the services of the Depository Trust Company (“DTC”), you will not receive a rights certificate. Instead, DTC will issue one subscription right to your nominee record holder for each share of our Common Stock that you beneficially own as of the Record Date. If you are not contacted by your nominee, you should contact your nominee as soon as possible.

May I subscribe for more than I am entitled to under the Basic Subscription Right?

          If you purchase all of the shares available to you pursuant to your Basic Subscription Rights, you may also choose to purchase a portion of any shares that other shareholders do not purchase by exercising their Basic Subscription Rights. You should indicate on your rights certificate, or the form provided by your nominee if your shares are held in the name of a nominee, how many additional shares you would like to purchase pursuant to your over-subscription privilege.

What is the over-subscription privilege?

          If you purchase all of the shares available to you pursuant to your Basic Subscription Rights, you may also choose to exercise your over-subscription privilege by purchasing a portion of any shares that other shareholders do not purchase by exercising their Basic Subscription Rights. You should indicate on your rights certificate, or the form provided by your nominee if your shares are held in the name of a nominee, how many additional shares you would like to purchase pursuant to your over-subscription privilege.

          If sufficient shares are available for offer pursuant to the Rights Offering, we will seek to honor the over-subscription requests in full.

          If over-subscription requests exceed the number of shares available, however, we will allocate the available shares pro rata among the shareholders exercising the over-subscription privilege in proportion to the number of shares of our Common Stock each of those shareholders owned on the Record Date, relative to the number of shares owned on the Record Date by all shareholders exercising the over-subscription privilege. If this pro rata allocation results in any shareholder receiving a greater number of shares than the shareholder subscribed for pursuant to the exercise of the over-subscription privilege, then such shareholder will be allocated only that number of shares for which the shareholder oversubscribed, and the remaining shares will be allocated among all other shareholders exercising the over-subscription privilege on the same pro rata basis described above. The proration process will be repeated until all shares have been allocated.

          Registrar and Transfer Company, our subscription agent for the Rights Offering, will determine the over-subscription allocation based on the formula described above.

Are there any limits on the number of shares I may purchase in the Rights Offering?

          Eligible Shareholders have the right to purchase 2.2698 shares of Common Stock for each share of Common Stock owned. If you hold a Right and fully exercise your Basic Subscription Rights, you may also subscribe for an unlimited additional whole number of common shares, subject to availability, provided that (i) no Eligible Shareholder shall thereby exceed, together with any other person with whom such shareholder may be aggregated under applicable law, 4.9% beneficial ownership of the Company’s equity securities and (ii) the aggregate purchase price of all Common Stock purchased in the Rights Offering shall not exceed $40 million. If the Rights Offering is over-subscribed, we will allocate the available shares pro rata in proportion to the number of shares of our Common Stock each of those shareholders owned on the Record Date, in the manner discussed in the question immediately above.

Will fractional shares be issued in the Rights Offering?

          No. Fractional shares resulting from the Basic Subscription Right or the over-subscription privilege will be eliminated by rounding down to the nearest whole shares.

Why are we conducting the Rights Offering?

          Like many financial institutions across the United States, we have been affected by deteriorating economic conditions and related financial losses. The report of our independent registered public accounting firm on our consolidated financial statements, as of and for the year ended December 31, 2009 and for the quarters ended March 31, 2010 and June 30, 2010, contained an explanatory paragraph regarding the uncertainty of our ability to continue as a going concern. Under our written agreement with our regulators, we are required to raise additional capital.

          Due to the Great Recession, and the deterioration of the regulatory capital of Bank of Hampton Roads, we have pursued strategic alternatives to raise capital and strengthen our balance sheet over the past year. Following the withdrawal of the Company’s underwritten public offering of Common Stock in August 2009, the Board of Directors worked closely with management and the Company’s advisors to evaluate potential alternatives for raising additional capital, including possibly selling common or preferred stock in public or private offerings, issuing subordinated debt and/or warrants, disposing of branches or related assets, trading deposits or loans, and considering other strategic alternatives.

          As a result, the Investors and the Company entered into the various definitive Investment Agreements to purchase 637,500,000 shares of Common Stock of the Company for $0.40 per share as part of an aggregate $255 million private placement (the “Private Placement”), in two separate closings. The Company is required to conduct the Rights Offering under the terms of the Investment Agreements.

          The initial closing (the “First Closing”) related to the issuance of $235 million worth of Common Stock occurred on September 30, 2010, following shareholder approval at the Company’s 2010 annual meeting of shareholders held on September 28, 2010 (the “Annual Meeting”) and upon the exchange of 80,347 shares of Series C preferred stock held by the United States Department of the Treasury (the “Treasury”) for newly-created shares of Series C-1 preferred stock (the “TARP Exchange”) and subsequent conversion of such Series C-1 preferred shares into 52,225,550 shares of Common Stock (the “TARP Conversion”), the exchange of Series A and B preferred for up to 22,806,000 shares of Common Stock (the “Exchange Offers”), and approval of an amendment to the preferred stock designations (the “Preferred Amendments”).

          The second closing for an additional $20 million from the Investors (the “Second Closing” and collectively with the First Closing, the “Closings”) will occur contemporaneously with the closing of the Rights Offering and the satisfaction or waiver of the other closing conditions as described in the Investment Agreements.

          Under the terms of the Investment Agreements, the Company is required to conduct this Rights Offering as promptly as practicable after the First Closing.

          The transactions described above are part of the Company’s “Recapitalization Plan” which includes the Private Placement, Rights Offering, Exchange Offers, TARP Exchange, TARP Conversion, a reverse stock split⁴ and Preferred Amendments. The issuance of Common Stock under the Recapitalization Plan and other authorizations were unanimously approved by the Board of Directors, and subsequently, the common shareholders at the Annual Meeting. The requisite amount of Series A and B preferred shareholders also approved the Preferred Amendments on that date.

          Summaries of the material terms of the Investment Agreements are qualified in their entirety by reference to the full text of each document. Copies of the Investment Agreements and ancillary documents are attached as Exhibits 10.1-10.9 to our Form 8-K filed on August 17, 2010, and Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 23, 2010, which are incorporated by reference herein.

          The transactions comprising our Recapitalization Plan are expected to return both Bank of Hampton Roads and the Company to significantly above “well-capitalized” status. As of September 30, 2010, as a result of the First Closing, the Company and its subsidiaries were “well-capitalized” under applicable regulatory guidance. We will use the proceeds received from the Rights Offering and the additional proceeds to be received in the Second Closing to capitalize our subsidiary banks and for other general corporate purposes.

How was the subscription price determined?

          We established a Special Committee of the Board of Directors, comprised of Patrick E. Corbin, Jordan E. Slone, and former director Bobby L. Ralph. The price of the shares offered in the Rights Offering was determined by the Special Committee and is based on a variety of factors, including, the desire to provide all existing shareholders with the opportunity to purchase additional shares at the same

price paid by Investors in the Private Placement, the need to offer the shares at a price that would be attractive to investors relative to the then current trading price for our Common Stock, historical and current trading prices for our Common Stock, general conditions in the financial services industry, the need for capital and alternatives available to us for raising capital and potential market conditions. In conjunction with its review of these factors, the Special Committee also reviewed our history and prospects, including our past and present earnings, our prospects for future earnings, the outlook for our industry and our current financial condition and regulatory status.

          The subscription price does not necessarily bear any relationship to any other established criteria for value. You should not consider the subscription price as an indication of value of the Company or our Common Stock. You should not assume or expect that, after the offering, our shares of Common Stock will trade at or above the subscription price in any given time period. The market price of our Common Stock may decline during or after the offering, and you may not be able to sell the underlying shares of our Common Stock purchased during the offering at a price equal to or greater than the subscription price. You should obtain a current quote for our Common Stock before exercising your subscription rights and make your own assessment of our business and financial condition, our prospects for the future, and the terms of this offering.

Am I required to exercise my subscription rights I receive in the Rights Offering?

          No. You may exercise your subscription rights or you may choose not to exercise any subscription rights. If you do not exercise any subscription rights, the number of shares of our Common Stock you own will not change as a result of the Rights Offering. However, if you choose not to exercise your subscription rights, your ownership interest in the Company will be diluted to the extent other shareholders exercise their subscription rights, and your voting and other rights in the Company will likewise be diluted.

How soon must I act to exercise my subscription rights?

          If you received a rights certificate and elect to exercise any or all of your subscription rights, the subscription agent must receive your completed and signed rights certificate and payment, including final clearance of any uncertified check, before the Rights Offering expires on December 10, 2010, at 5:00 p.m., Eastern Time. If you hold your shares in the name of a broker, dealer, custodian bank or other nominee, your nominee may establish an earlier deadline before the expiration of the Rights Offering by which you must provide it with your instructions to exercise your subscription rights. Although our Board of Directors may, in its discretion, extend the expiration date of the Rights Offering, we currently do not intend to do so. Our Board of Directors may cancel the Rights Offering at any time to the extent permitted by the Investment Agreements. If we cancel the Rights Offering, all subscription payments received will be returned promptly, without interest or penalty.

          Although we will make reasonable attempts to provide this prospectus to our shareholders, the Rights Offering and all subscription rights will expire on the expiration date, whether or not we have been able to locate each person entitled to subscription rights.

May I transfer my subscription rights?

          No. You may not sell, transfer or assign your subscription rights to anyone. Subscription rights will not be listed for trading on the NASDAQ Global Select Market or any other stock exchange or market. Rights certificates may be completed only by the shareholder who receives the certificate.

Are we requiring a minimum overall subscription from existing shareholders to complete the offering?

          No. We are not requiring an overall minimum subscription to complete the offering. However, subject to the terms of the Investment Agreements, the Investors have agreed to backstop the Rights Offering by purchasing from us, at the subscription price, any shares not purchased by our existing stockholders. See “Questions and Answers Relating to the Offering — How does the backstop commitment work?”

Can the Board of Directors cancel or extend the offering?

          Yes. Subject to the terms of the Investment Agreements, our board of directors may decide to cancel the Rights Offering before the closing of the offering to the extent permitted by the Investment Agreements. If our Board of Directors cancels the Rights Offering, any money received from subscribing shareholders will be returned promptly, without interest or penalty. If we cancel the Rights Offering, we will not be obligated to issue shares of our Common Stock to holders who have exercised their subscription rights prior to termination. We also have the right to extend the offering for additional periods, although we do not currently intend to do so.

Have the Board of Directors or the Investors made a recommendation to shareholders regarding the Rights Offering?

          No. Neither our Board of Directors nor the Investors are making a recommendation regarding your exercise of the subscription rights, although our Board of Directors has determined that conducting the Rights Offering is in the best interests of the Company. Shareholders who exercise subscription rights will incur investment risk on new money invested. We cannot predict the price at which our shares of Common Stock will trade after the offering. The market price for our Common Stock may decrease to an amount below the subscription price, and if you purchase shares at the subscription price, you may not be able to sell the underlying shares of our Common Stock in the future at the same price or a higher price. You should make your decision based on your assessment of our business and financial condition, our prospects for the future, the terms of the Rights Offering and the information contained in, or incorporated by reference into, this prospectus. See “Risk Factors” for a discussion of some of the risks involved in investing in our shares of Common Stock.

Will our directors and executive officers participate in the Rights Offering?

          To the extent they held shares of Common Stock as of the Record Date, our directors and officers are entitled to participate in the Rights Offering on the same terms and conditions applicable to all shareholders. We believe such directors and executive officers will participate in the Rights Offering at varying levels, but they are not required to do so.

How do I exercise my subscription rights if I own shares in certificate form?

          If you hold a Common Stock certificate and you wish to participate in the Rights Offering, you must deliver a properly completed and signed rights certificate, together with payment of the purchase price, to the subscription agent before 5:00 p.m., Eastern Time, on December 10, 2010. If you send an uncertified check, payment will not be deemed to have been delivered to the subscription agent until the check has cleared. In certain cases, you may be required to provide signature guarantees.

          Please follow the delivery instructions on the rights certificate. Do not deliver documents to the Company. You are solely responsible for completing delivery to the subscription agent of your subscription documents, rights certificate and payment. You should allow sufficient time for delivery of your subscription materials to the subscription agent so that the subscription agent receives them by 5:00 p.m., Eastern Time, on December 10, 2010.

          If you send a payment that is insufficient to purchase the number of shares you requested, or if the number of shares you requested is not specified in the forms, the payment received will be applied to exercise your subscription rights to the fullest extent possible based on the amount of the payment received, subject to the availability of shares under the over-subscription privilege and the elimination of fractional shares.

What should I do if I want to participate in the Rights Offering but my shares are held in the name of a broker, dealer, custodian bank or other nominee?

          If you hold your shares of Common Stock through a broker, dealer, custodian bank or other nominee, then your nominee is the record holder of the shares you own. The record holder must exercise the subscription rights on your behalf. If you wish to purchase our Common Stock through the Rights Offering, you should contact your broker, dealer, custodian bank or nominee as soon as possible. Please follow the instructions of your nominee. Your nominee may establish an earlier deadline before the expiration date of the Rights Offering.

What form of payment is required to purchase our common shares?

          As described in the instructions accompanying the rights certificate, payments submitted to the subscription agent must be made in U.S. currency, by one of the following two methods:

•

by an uncertified check drawn upon a U.S. bank payable to “Registrar and Transfer Company as rights agent for Hampton Roads Bankshares, Inc.,” or

•

by wire transfer of immediately available funds at the following account: ABA No. 031-201-360, further credit to Account No. 276-053-5977 at TD Bank, 6000 Atrium Way, Mt. Laurel, New Jersey, 08054, with an account name of “Registrar and Transfer Company as rights agent for Hampton Roads Bankshares, Inc.” Any wire transfer should clearly indicate the identity of the subscriber who is paying the Subscription Price by wire transfer.

          Payments will be deemed to have been received upon (i) clearance of any uncertified check, or (ii) receipt of collected funds in the account designated above. If paying by uncertified check, please note that the funds paid thereby may take five or more business days to clear. Accordingly, Rights holders who wish to pay the subscription price by means of uncertified check are urged to make payment sufficiently in advance of the expiration time to ensure that such payment is received and clears by such date.

          If you hold your shares in the name of a broker, dealer, custodian bank or other nominee, separate payment instructions may apply. Please contact your nominee, if applicable, for further payment instructions.

When will I receive my new shares?

          If you purchase Common Stock in the Rights Offering, you will receive your new shares as soon as practicable after the Rights Offering closes. We anticipate that the offering will close on or about December 10, 2010.

After I send in my payment and rights certificate to the subscription agent, may I cancel my exercise of subscription rights?

          No. All exercises of subscription rights are irrevocable unless the Rights Offering is cancelled by the Company, even if you later learn information that you consider to be unfavorable to the exercise of your subscription rights. You should not exercise your subscription rights unless you are certain that you wish to purchase shares at the subscription price of $0.40 per share.

What effects will the offering have on our outstanding Common Stock?

          As a result of the Rights Offering, an additional 100,000,000 shares of our Common Stock will be issued and outstanding after the closing of the Rights Offering, including Investor purchases pursuant to the backstop. As a result of the Rights Offering and backstop (if applicable), subject to the terms of the Investment Agreements and conditions of the backstop, the ownership interests and voting interests of the existing shareholders that do not fully exercise their Basic Subscription Rights will be diluted.

          In addition, if the subscription price of the shares is less than the market price of our Common Stock it will likely reduce the market price per share of shares you already hold.

How much will the Company receive from the offering and how will such proceeds be used?

          We estimate that the net proceeds to us from the Rights Offering (including the full exercise of the backstop, if necessary), after deducting estimated offering expenses, will be approximately $39.9 million. We intend to use the net proceeds from the offering (including the possible backstop) to make capital contributions to our subsidiary banks and for other general corporate purposes.

Are there risks in exercising my subscription rights?

          Yes. The exercise of your subscription rights involves risks. Exercising your subscription rights involves the purchase of additional shares of Common Stock and you should consider this investment as carefully as you would consider any other investment. Among other things, you should carefully consider the risks described under the heading “Risk Factors” beginning on page S-22 of this Prospectus and in the documents incorporated by reference into this prospectus.

If the Rights Offering is not completed, will my subscription payment be refunded to me?

          Yes. The subscription agent will hold all funds it receives in a segregated bank account until completion of the offering. If we do not complete the offering, all subscription payments received by the subscription agent will be returned promptly, without interest or penalty. If you own shares in “street name,” it may take longer for you to receive your subscription payment because the subscription agent will return payments through the record holder of your shares.

What fees or charges apply if I purchase shares in the Rights Offering?

          We are not charging any fee or sales commission to issue subscription rights to you or to issue shares to you if you exercise your subscription rights. If you exercise your subscription rights through a broker, dealer, custodian bank or other nominee, you are responsible for paying any fees your record holder may charge you.

What are the U.S. federal income tax consequences of exercising my subscription rights?

          For U.S. federal income tax purposes, you should not recognize income or loss in connection with the receipt or exercise of subscription rights in the Rights Offering. You should consult your tax advisor as to your particular tax consequences resulting from the Rights Offering. For a detailed discussion, see “Certain U.S. Federal Income Tax Consequences.”

To whom should I send my forms and payment?

          If your shares are held in the name of a broker, dealer, custodian bank or other nominee, then you should send your subscription documents and subscription payment to that record holder. If you are the record holder, then you should send your subscription documents, rights certificate and subscription payment by mail, hand delivery or overnight courier to:

Registrar and Transfer Company
10 Commerce Drive Cranford, NJ 07016
Attn. Reorg/Exchange Department

Telephone Number for Confirmation:
(800) 368-5948 (toll free)

Telephone Number for Information:
(800) 368-5948 (toll free)

Email Address for Information:
info@rtco.com

          You or, if applicable, your nominee are solely responsible for completing delivery to the subscription agent of your subscription documents, rights certificate and payment. You should allow sufficient time for delivery of your subscription materials to the subscription agent and clearance of payment before the expiration of the Rights Offering at 5:00 p.m., Eastern Time, on December 10, 2010.

Who are there backstop purchasers?

          The Investors in the Private Placement are the backstop purchasers.

How does the backstop commitment work?

          Subject to the terms of the Investment Agreements, the Investors have collectively agreed to purchase from us, at $0.40 per share, all of the shares of Common Stock offered pursuant to the Rights Offering that are not issued pursuant to the exercise of Rights.

          In the event the Company does not sell at least $20 million in common shares pursuant to the Rights Offering, CapGen has agreed to purchase, at $0.40 per share, the number of common shares in an aggregate dollar amount equal to $20 million less the dollar amount of common shares sold pursuant to the exercise of Rights. In addition, in the event that the Company sells at least $20 million but less than $40 million in common shares pursuant to the Rights Offering, Carlyle, Anchorage, CapGen, Fir Tree, Davidson Kempner, and C12 have agreed to purchase, on a pro rata basis, at $0.40 per share, the number of common shares in an aggregate dollar amount equal to less than $40 million less the dollar amount of common shares sold pursuant to the exercise of Rights.

          In no event shall the Investors be required to purchase shares in the backstop in excess of their respective pro rata basis or such as would cause Carlyle, Anchorage or CapGen to hold more than 24.9% of the Company’s outstanding common shares or cause Fir Tree, Davidson Kempner or C12 to hold more than 9.9% of the Company’s outstanding common shares. To the extent the Rights Offering is not fully sold following the purchases by the Eligible Shareholders and the investors, the Company may offer any remaining unsubscribed shares at $0.40 per share.

Why are there backstop purchasers?

          We obtained the backstop commitment to ensure that, subject to the conditions of the backstop commitment, all shares are either distributed in the Rights Offering or purchased subsequent to the offering at the same purchase price at which the Rights were exercisable. Through this arrangement, we have a greater degree of certainty that we will raise gross proceeds of $40 million through the Rights Offering and the backstop commitment.

Whom should I contact if I have other questions?

          If you have any questions regarding the Company, the Rights Offering, completing a rights certificate or submitting payment in the Rights Offering, please contact our information agent for the Rights Offering: Douglas J. Glenn, Executive Vice President, General Counsel, and Chief Operating Officer at Hampton Roads Bankshares, Inc., 999 Waterside Dr., Suite 200, Norfolk, Virginia 23510 at (757) 217-3634.

PROSPECTUS SUMMARY

          The following summary highlights selected information contained elsewhere in this Prospectus and in the documents incorporated by reference in this Prospectus and does not contain all the information you will need in making your investment decision. You should read carefully this entire Prospectus and the documents incorporated by reference in this Prospectus before making your investment decisions.

HAMPTON ROADS BANKSHARES, INC.

Company Overview

     Hampton Roads Bankshares, Inc. is the parent company of the sixth largest Virginia-domiciled commercial bank, Bank of Hampton Roads. Through our network of 60 financial centers and 72 ATMs, we emphasize personalized customer service and provide a full range of financial products targeting the needs of individuals and small to medium sized businesses in our primary market areas, which include Hampton Roads, Virginia, the Northeastern, Southeastern and Research Triangle regions of North Carolina and Richmond, Virginia.

     Our principal business is to attract deposits and to loan or invest those deposits on profitable terms. We offer all traditional loan and deposit banking services, as well as telephone banking, internet banking, remote deposit capture, and debit cards. We accept both commercial and consumer deposits. These deposits are in varied forms of both demand and time accounts, including checking accounts, interest checking, money market accounts, savings accounts, certificates of deposit, and IRA accounts.

     We complement our core banking operations by offering a wide range of services through our various non-banking subsidiaries, which include Hampton Roads Investments, Inc., which provides securities, brokerage and investment advisory services, Shore Investments, Inc., which provides securities brokerage and investment advisory services, Gateway Insurance Services, Inc., which provides insurance brokerage services, Gateway Investment Services, Inc., which provides investment advisory services, Gateway Bank Mortgage, Inc., which provides mortgage brokerage services, and Gateway Title Agency, Inc., which offers real property title insurance and real property settlement services.

     At September 30, 2010, we had total consolidated assets of approximately $3.07 billion, net total loans of $1.94 billion, total deposits of $2.59 billion, and consolidated shareholders’ equity of approximately $168.5 million.

     We currently have two banking subsidiaries—Bank of Hampton Roads and Shore Bank, which operate 60 financial centers located throughout Virginia, North Carolina and Maryland. Of these financial centers, 24 operate by trade name as Gateway Bank, 28 as Bank of Hampton Roads, and eight as Shore Bank. On June 1, 2008, the Company acquired Shore Financial Corporation (“Shore”), and on December 31, 2008, the Company acquired Gateway Financial Holdings, Inc (“Gateway”).

     The Company is a bank holding company organized under the laws of the Commonwealth of Virginia and is registered under the federal Bank Holding Company Act of 1956. The Company was incorporated on February 28, 2001, primarily to serve as a holding company for Bank of Hampton Roads. Bank of Hampton Roads is a Virginia chartered bank that was incorporated in March, 1987.

     Our Common Stock is traded on the NASDAQ Global Select Market under the ticker symbol “HMPR.” Our principal executive offices are located at 999 Waterside Drive, Suite 200, Norfolk, Virginia 23510 and our telephone number is (757) 217-1000. Our internet address is http://www.hamptonroadsbanksharesinc.com. The information contained on our web site is not part of this Prospectus.

Recent Developments

     Appointment of New Auditors

     On October 7, 2010, the Audit Committee of the Company’s Board of Directors dismissed Yount, Hyde & Barbour, P.C. as the Company’s independent registered public accounting firm. On the same date, following a comprehensive search process initiated by the Company, the Audit Committee appointed KPMG LLP as the Company’s independent registered public accounting firm. See the Company’s Current Report on Form 8-K filed on October 13, 2010, which is incorporated herein by reference.

     Changes to the Company’s Board of Directors

     Effective September 30, 2010, Emil A. Viola retired from the Company’s Board of Directors.

     In addition, effective September 30, 2010, in connection with the First Closing of the Private Placement, the following members of the Company’s Board of Directors resigned: William Brumsey, III, Herman A. Hall, III, Robert R. Kinser, Bobby L. Ralph, Roland Carroll Smith, Sr., Ollin B. Sykes, Frank T. Williams, and Jerry T. Womack. Effective October 4, 2010, Richard F. Hall, III also resigned from the Company’s Board of Directors as contemplated under the terms of the Investment Agreements.

     On September 30, 2010, the Company appointed Randal K. Quarles to its Board of Directors. Mr. Quarles was designated to the Company’s Board of Directors by an affiliate of Carlyle pursuant to the terms of the Investment Agreements.

     Also on September 30, 2010, the Company appointed Hal F. Goltz to its Board of Directors. Mr. Goltz was designated to the Company’s Board of Directors by an affiliate of Anchorage pursuant to the terms of the Investment Agreements.

     On October 4, 2010, the Company appointed Robert B. Goldstein to its Board of Directors. Mr. Goldstein was designated to the Company’s Board of Directors by an affiliate of CapGen pursuant to the terms of the Investment Agreements.

     Implementation of Initial Portion our Recapitalization Plan

     On August 11, 2010, the Investors and the Company entered into the Investment Agreements to purchase 637,500,000 shares of Common Stock of the Company for $0.40 per share as part of the Private Placement. Since then, the following events have taken place in furtherance of the Company’s Recapitalization Plan:

•

On September 28, 2010, the Company’s common shareholders approved the issuance of Common Stock in the Private Placement and the Rights Offering and other matters presented at the Annual Meeting, including the Preferred Amendments, and holders of the Company’s Series A and B preferred shareholders approved the Preferred Amendments at a special meeting of such preferred shareholders.

•

On September 28, 2010, the Company amended its Amended and Restated Articles of Incorporation, as amended (the “Articles of Incorporation”), to increase the amount of Common Stock authorized for issuance by 900,000,000 shares, from 100,000,000 to 1,000,000,000 shares.

•

As reported in the Company’s Amendment No. 2 to its Schedule TO, filed on October 1, 2010 (the “Amended Schedule TO”), on September 29, 2010, the Company exchanged the amount of newly-issued shares of Common Stock described therein for previously outstanding shares of Series A and B preferred stock tendered in such exchange offers. The information contained in the Amended Schedule TO is incorporated herein by reference.

•

On September 30, 2010, the Company sent irrevocable conversion notices to the holders of all remaining shares of Series A and Series B preferred stock. Upon conversion, each share of Series A and Series B preferred stock was automatically cancelled and converted into the right to receive 375 common shares upon delivery of the Series A and Series B preferred stock certificates to the Company, for an aggregate issuance of 900,000 common shares.

•

On September 30, 2010, the Company exchanged 80,347 shares of Series C preferred stock held by the Treasury for newly-created shares of Series C-1 preferred stock and converted such shares of Series C-1 preferred stock into 52,225,550 shares of Common Stock, pursuant to an Exchange Agreement with Treasury (“the Exchange Agreement”).

•

On September 30, 2010, the Company issued $235 million worth of common shares, or 587,500,000 shares, at a price of $0.40 per share in the following amounts to the following entities.

Registered Name		Number of Shares Issued
Carlyle Financial Services Harbor, L.P.		164,956,965
ACMO-HR, L.L.C.		153,020,190
CapGen Capital Group VI LP		114,223,775
M.H. Davidson & Co.		1,561,302
Davidson Kempner Partners		10,869,716
Davidson Kempner Institutional Partners, L.P.		21,988,770
Davidson Kempner International, Ltd.		25,336,954
Davidson Kempner Distressed Opportunities International, Ltd.		5,797,326
Davidson Kempner Distressed Opportunities Funds LP		2,720,467
Fir Tree Value Master Fund, L.P.		45,193,824
Fir Tree REOF II Master Fund, LLC		23,080,711
C12 Protium Value Opportunities Ltd.		18,750,000
TOTAL NUMBER OF SHARES		587,500,000

•

On September 30, 2010, the Company issued warrants to purchase Common Stock described in the Company’s Current Report on Form 8-K, filed August 17, 2010, to each of the following entities: Carlyle Investment Management L.L.C, ACMO-HR, L.L.C. and CapGen Capital Group VI LP. The information contained in that current report is incorporated herein by reference.

     Restatement of Year End and First Quarter Financial Statements

     On August 10, 2010, the Company announced that it would restate its financial statements for the fiscal year ended December 31, 2009 and the fiscal quarter ended March 31, 2010 (the “Restatements”). Management, the Audit Committee and the Board of Directors of the Company determined that they should provide for an increase in the valuation allowance against the Company’s deferred tax asset of approximately $56 million for the year ended December 31, 2009 and $14.3 million for the period ended March 31, 2010. This resulted in an increase in the Company’s losses by approximately $56 million for the period ended December 31, 2009 and $14.3 million for the period ended March 31, 2010. The allowance does not affect the Company’s cash or liquidity in any way. The Restatements were filed on August 13, 2010. See Amendment No. 2 to the Company’s Form 10-K for the year ended December 31, 2009, filed by the Company with the SEC on August 13, 2010 and Amendment No. 1 to the Company’s Form 10-Q for the quarter ended March 31, 2010, filed by the Company with the SEC on August 13, 2010.

The Rights Offering

Securities Offered		We are distributing at no charge to record holders of our Common Stock as of 5:00 p.m., Eastern Time, on the record date of September 29, 2010, one non-transferable subscription right for each share of Common Stock then held of record. For each subscription right that you own, you will have a Basic Subscription Right to buy from us 2.2698 shares of our Common Stock at a subscription price of $0.40 per share and an over-subscription privilege.
Subscription Price		The subscription price is $0.40 per share of Common Stock, which was determined through a Special Committee of the Board of Directors. See “Questions and Answers Relating to the Offering – How was the subscription price determined?”
Subscription Right		Each subscription right consists of a Basic Subscription Right and an over-subscription privilege.
Basic Subscription Right		For each subscription right that you own, you will have a Basic Subscription Right to buy from us 2.2698 shares of Common Stock at the subscription price. You may exercise your Basic Subscription Right for some or all of your subscription rights, or you may choose not to exercise any of your Basic Subscription Rights.
Over-subscription Privilege		Holders who purchase all of the shares available to them pursuant to their Basic Subscription Rights may also choose to exercise their over-subscription privilege by purchasing a portion of any shares that other shareholders do not purchase by exercising their Basic Subscription Rights. If the Rights Offering is over-subscribed, we will allocate the available shares pro rata in proportion to the number of shares of our Common Stock each of those shareholders owned on the Record Date. For additional details regarding the pro rata allocation process, see “Questions and Answers Relating to the Rights Offering – What is the over-subscription privilege?”
No Fractional Shares		Fractional shares resulting from the exercise of the Basic Subscription Rights and the over-subscription privileges will be eliminated by rounding down to the nearest whole share.
Record Date		September 29, 2010
Expiration Date		The subscription rights will expire at 5:00 p.m., Eastern Time, on December 10, 2010, unless the expiration date is extended. We reserve the right to extend the subscription rights period at our sole discretion.

Shares Outstanding		As of November 10, 2010, we had 684,680,995 shares of Common Stock outstanding. Assuming the sale of all 100,000,000 shares in the Rights Offering, we would have 784,680,352 shares outstanding upon the completion of the offering.
Use of Proceeds		Our gross proceeds from the offering will be approximately $40 million (before offering expenses). We intend to use the net proceeds from the offering and any sale of shares of Common Stock to the Investors through their backstop commitment to make capital contributions to our subsidiary banks and for other general corporate purposes. Please see “Use of Proceeds.”
Procedure for Exercising Subscription Rights		To exercise your subscription rights, you must take the following steps:
		If you are a registered holder of Common Stock, you may deliver payment and a properly completed rights certificate to the subscription agent before December 10, 2010, at 5:00 p.m., Eastern Time.
		If you are a beneficial owner of shares that are registered in the name of a broker, dealer, custodian bank or other nominee, your broker, dealer, custodian bank or other nominee must exercise your subscription rights on your behalf and deliver all documents and payments before December 10, 2010, at 5:00 p.m., Eastern Time.
Non-Transferability of Subscription Rights		The subscription rights may not be sold, transferred or assigned to anyone else and will not be listed for trading on NASDAQ or any other stock exchange or market.
No Revocation		All exercises of subscription rights are irrevocable, even if you later learn information that you consider to be unfavorable to the exercise of your subscription rights. You should not exercise your subscription rights unless you are certain that you wish to purchase additional shares of Common Stock at a subscription price of $0.40 per share.
No Board or Investor Recommendation		Neither our Board of Directors nor the Investors are making any recommendation regarding your exercise of the subscription rights. You are urged to make your decision based on your own assessment of our business and the Rights Offering. Please see “Risk Factors” for a discussion of some of the risks involved in investing in our Common Stock.

Subscription Agent		Registrar and Transfer Company
Dividend Policy		All dividends on the Company’s Common Stock have been suspended. See “Market for Common Stock and Dividend Policy” on page S-41.
Market for Common Stock		Our Common Stock is currently traded on the NASDAQ Global Select Market under the symbol “HMPR.” See “Market for Common Stock and Dividend Policy” at page S-41.
Backstop Commitment and Investment Agreements		We have entered into Investment Agreements with the Investors, pursuant to which they have agreed to backstop the Rights Offering by purchasing from us, at the subscription price, any shares not purchased by our existing stockholders up to 100,000,000 shares of Common Stock. If all the conditions to the backstop commitment are met, the backstop commitment will ensure that we raise gross proceeds of no less than approximately $40 million through the Rights Offering and the backstop commitment. See “Questions and Answers Relating to the Offering – How does the backstop commitment work?”

RISK FACTORS

          An investment in our Common Stock involves various risks. You should carefully understand the risks described below before you invest in our Common Stock. If any of the following risks actually occur, our business, financial condition, and results of operations could suffer, in which case the trading price of our Common Stock could decline. You should read this section together with the other information presented in this Prospectus.

Risks Related to our Business

We incurred significant losses in 2009 and through the third quarter of 2010 and may continue to do so in the future, and we can make no assurances as to when we will be profitable.

          Throughout 2009 and though the third quarter of 2010, economic conditions in the markets in which our borrowers operate continued to deteriorate and the levels of loan delinquencies and defaults that we experienced were substantially higher than historical levels and our net interest income has declined. Our loan customers continue to operate in an economically stressed environment.

          As a result, our net income available to common shareholders for the three months ended September 30, 2010 was $30.0 million or $1.02 per common diluted share, and our net loss available to common shareholders for the nine months ended September 30, 2010 was $64.5 million or $2.63 per common diluted share as compared with net loss available to common shareholders of $14.7 million or $0.68 per common diluted share and $56.6 million or $2.60 per common diluted share for the three and nine months, respectively, ended September 30, 2009. The net loss for the nine months ended September 30, 2010 was primarily attributable to provision for loan losses expense of $183.9 million. This loss would have been significantly greater had it not been for a $111.7 million increase in income available to common shareholders created by the exchange and conversion of preferred stock to Common Stock in connection with initial closing of the Private Placement. This income will not reoccur in the future. Moreover, net interest income decreased $8.5 million and $20.9 million for the three and nine months, respectively, ended September 30, 2010 as compared to the same period in 2009. In light of the current economic environment, significant additional provisions for loan losses may be necessary to supplement the allowance for loan losses in the future. As a result, we may continue to incur significant credit costs and net losses throughout the remainder of 2010 and into 2011, which would continue to adversely impact our financial condition and results of operations and the value of our Common Stock. We currently expect that we will not become profitable again on a quarterly basis until the later portion of 2011. Additional loan losses could cause us to incur future net losses and could adversely affect the price of, and market for, our Common Stock.

We may need to raise additional capital that may not be available to us.

          As a result of our continuing losses, we may need to raise additional capital in the future if we continue to incur additional losses or due to regulatory mandates. The ability to raise additional capital, if needed, will depend in part on conditions in the capital markets at that time, which are outside our control, and on our financial performance.

          Accordingly, additional capital may not be raised, if and when needed, on terms acceptable to us, or at all. If we cannot raise additional capital when needed, our ability to maintain our capital ratios could be materially impaired, and we could face additional regulatory challenges.

The Company has restated its financial statements, which may have a future adverse effect.

          The Company may continue to suffer adverse effects from the restatement of its previously issued financial statements that were included in its annual report on Form 10-K for the year ended December 31, 2009, as amended, and its quarterly report on Form 10-Q for the quarter ended March 31, 2010, as amended.

          As a result of this matter, the Company may become subject to civil litigation or regulatory actions. Any of these matters may contribute to further rating downgrades, negative publicity, and difficulties in attracting and retaining customers, employees, and management personnel.

Bank of Hampton Roads is restricted from accepting new brokered deposits, and an inability to maintain our regulatory capital position could adversely affect our operations.

          Bank of Hampton Roads’ Written Agreement (as defined below) prohibits it from accepting any new brokered deposits, even though it is currently “well-capitalized” for regulatory purposes. Because Shore Bank is not included in the Written Agreement, it is not subject to these restrictions.

          In addition, Section 29 of the Federal Deposit Insurance Act (“FDIA”) limits the use of brokered deposits by institutions that are less than “well-capitalized” and allows the Federal Deposit Insurance Corporation (the “FDIC”) to place restrictions on interest rates that institutions may pay. If Bank of Hampton Roads or Shore Bank is unable to remain “well-capitalized” for regulatory purposes it will be, among other restrictions, prohibited from paying rates in excess of 75 basis points above the national market average on deposits of comparable maturity. Effective January 1, 2010, financial institutions that are not “well-capitalized” are prohibited from paying yields for deposits in excess of 75 basis points above a new national average rate for deposits of comparable maturity, as calculated by the FDIC. If a restriction is placed on the rates that Bank of Hampton Roads and Shore Bank are able to pay on deposit accounts that negatively impacts their ability to compete for deposits in our market area, our banks may be unable to attract or maintain core deposits, and their liquidity and ability to support demand for loans could be adversely affected.

The Company has received a grand jury subpoena from the United States Department of Justice, Criminal Division and, although the Company is not a target at this time, and we do not believe we will become a target, there can be no assurances as to the timing or eventual outcome of the related investigation.

          On November 2, 2010, the Company received from the United States Department of Justice, Criminal Division, a grand jury subpoena to produce information principally relating to the merger of Gateway Financial Holdings, Inc. into the Company on December 31, 2008, and to loans made by Gateway Financial Holdings, Inc. and its wholly-owned subsidiary, Gateway Bank & Trust, before Gateway Financial Holdings, Inc.’s merger with the Company. The United States Department of Justice, Criminal Division has informed the Company that it is not a target of the investigation at this time, and we are fully cooperating. Although we do not believe this matter will have a material adverse affect on the Company and do not believe that we will become a target, we can give you no assurances as to the timing or eventual outcome of this investigation.

Current and future increases in FDIC insurance premiums, including the FDIC special assessment imposed on all FDIC-insured institutions, will decrease our earnings. In addition, FDIC insurance assessments will likely increase from our prior inability to maintain a well-capitalized status, which would further decrease earnings.

          The Emergency Economic Stabilization Act of 2008 (“EESA”) temporarily increased the limit on FDIC coverage to $250,000 for all accounts through December 31, 2013. The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”), signed by President Obama on July 21, 2010, permanently lifted the FDIC coverage limit to $250,000. The Dodd-Frank Act also revised the assessment methodology for funding the Deposit Insurance Fund, requiring that assessments be based on an institution’s total liabilities, not just deposit liabilities. In addition, in May of 2009, the FDIC announced that it had voted to levy a special assessment on insured institutions in order to facilitate the rebuilding of the Deposit Insurance Fund. The assessment is equal to five basis points of the Company’s total assets minus Tier 1 capital as of June 30, 2009. This represented a charge of approximately $1.4 million, which was recorded as a pre-tax charge during the second quarter of 2009. The FDIC has indicated that future special assessments are possible.

          Even though the First Closing of the Private Placement has returned Bank of Hampton Roads to “well-capitalized” status as of September 30, 2010, our FDIC insurance assessments for Bank of Hampton Roads nonetheless may increase in the future due to a variety of factors. Any increases in FDIC insurance assessments would decrease our earnings.

We have entered into the Written Agreement with the Federal Reserve Bank of Richmond and the Virginia Bureau of Financial Institutions, which requires us to dedicate a significant amount of resources to complying with the agreement and may have a material adverse effect on our operations and the value of our securities.

          Effective June 17, 2010, the Company and Bank of Hampton Roads entered into a written agreement (the “Written Agreement”) with the Federal Reserve Bank of Richmond (the “Reserve Bank”) and the Virginia Bureau of Financial Institutions (the “Virginia Bureau”). Shore Bank is not a party to the Written Agreement.

          Under the terms of the Written Agreement, Bank of Hampton Roads has agreed to develop and submit for approval within the time periods specified in the Written Agreement, written plans to:

	•		strengthen board oversight of management and Bank of Hampton Roads’ operations;
	•		strengthen credit risk management policies;
	•		improve Bank of Hampton Roads’ position with respect to loans, relationships, or other assets in excess of $2.5 million that are now or in the future may become past due more than 90 days, are on Bank of Hampton Roads’ problem loan list, or adversely classified in any report of examination of Bank of Hampton Roads;
	•		review and revise, as appropriate, current policy and maintain sound processes for determining, documenting, and recording an adequate allowance for loan and lease losses;
	•		improve management of Bank of Hampton Roads’ liquidity position and funds management policies;
	•		provide contingency planning that accounts for adverse scenarios and identifies and quantifies available sources of liquidity for each scenario;
	•		reduce Bank of Hampton Roads’ reliance on brokered deposits; and
	•		improve Bank of Hampton Roads’ earnings and overall condition.

          In addition, Bank of Hampton Roads has agreed that it will:

•

not extend, renew, or restructure any credit that has been criticized by the Reserve Bank or the Virginia Bureau absent prior Board of Directors approval in accordance with the restrictions in the Written Agreement;

•

eliminate all assets or portions of assets classified as “loss” and thereafter charge off all assets classified as “loss” in a federal or state report of examination, unless otherwise approved by the Reserve Bank;

	•		comply with legal and regulatory limitations on indemnification payments and severance payments; and
	•		appoint a committee to monitor compliance with the terms of the Written Agreement.

          In addition, the Company has agreed that it will:

•

not take any other form of payment representing a reduction in Bank of Hampton Roads’ capital or make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities absent prior regulatory approval;

•

take all necessary steps to correct certain technical violations of law and regulation cited by the Reserve Bank;

•

refrain from guaranteeing any debt without the prior written approval of the Reserve Bank and the Virginia Bureau; and

•

refrain from purchasing or redeeming any shares of its stock without the prior written consent of the Reserve Bank or the Virginia Bureau.

          Under the terms of the Written Agreement, the Company and Bank of Hampton Roads have submitted for approval capital plans to maintain sufficient capital at the Company, on a consolidated basis, and at Bank of Hampton Roads, on a stand-alone basis, and to refrain from declaring or paying dividends absent prior regulatory approval.

          This description of the Written Agreement is qualified in its entirety by reference to the copy of the Written Agreement filed with the Company’s Current Report on Form 8-K, filed June 17, 2010. To date, the Company and Bank of Hampton Roads have met all of the deadlines for taking actions required by the Reserve Bank and the Virginia Bureau under the terms of the Written Agreement. The Audit Committee has been appointed to oversee the Company’s compliance with the terms of the agreement and has met each month to review compliance. Written plans have been submitted for strengthening board oversight, strengthening credit risk management practices, improving liquidity, reducing the reliance on brokered deposits, improving capital, and curing the technical violations of laws and regulations. The Company has also submitted its written policies and procedures for maintaining an adequate allowance for loan and lease losses and its plans for all foreclosed real estate and nonaccrual and delinquent loans in excess of $2.5 million. Additionally, the Company instituted the required review process for all classified loans. Previously, the Company charged off the assets identified as loss from the previous examination. Moreover, the Company has raised $235.0 million in the First Closing of the Private Placement. The Company and Bank of Hampton Roads were “well-capitalized” as of September 30, 2010. As a result, management believes the Company and Bank of Hampton Roads are in full compliance with the terms of the agreement. If, however, we do not comply with the Written Agreement, we could be subject to the assessment of civil money penalties, further regulatory sanctions, or other regulatory enforcement actions.

Our estimate for losses in our loan portfolio may be inadequate, which would cause our results of operations and financial condition to be adversely affected.

          We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to our expenses, that represents management’s best estimate of probable losses within our existing portfolio of loans. Our allowance for loan losses amounted to $163.3 million at September 30, 2010 as compared to $132.7 million at December 31, 2009. The level of the allowance reflects management’s estimates and judgments as to specific credit risks, evaluation of industry concentrations, loan loss experience, current loan portfolio quality, present economic, political, and regulatory conditions, and unidentified losses inherent in the current loan portfolio that have been increasing in light of recent economic conditions. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires management to make significant estimates of current credit risks and future trends, all of which may undergo material changes. Our allowance for loan losses may increase significantly in the future. Any such increases in the allowance for loan losses may have a material adverse effect on our results of operations, financial condition, and the value of our Common Stock.

We have had and may continue to have large numbers of problem loans and difficulties with our loan administration, which could increase our losses related to loans.

          Our non-performing assets as a percentage of total assets increased to 12% at September 30, 2010 from 9% at December 31, 2009. On September 30, 2010, 0.95% of our loans are 30 to 89 days delinquent and are treated as performing assets. Based on these delinquencies, we expect more loans to become non-performing. The administration of non-performing loans is an important function in attempting to mitigate any future losses related to our non-performing assets.

          In the past, our management of non-performing loans was, at times, not as strong as we would prefer. In 2009, we hired an independent third party to review a significant portion of our loans. The independent third party discovered several issues with our loan management that we have since taken significant remedial steps to address. The following issues were identified: updated appraisals on problem loans and large loans secured by real estate were not always being obtained; better organized credit files were needed; additional resources were needed to manage problem loans; and a lack of well-defined internal workout policies and procedures.

          A variety of initiatives were undertaken in 2009 to remediate the conditions noted above as well as other enhancements to our credit review and collection processes. Initiatives and procedures which augmented the credit administration function included acquisition and development loan reviews, interest reserve loan reviews, past due loan reviews, forecasting reviews, standard loan reviews, loans presented for approval and renewal, relationship reviews, and global cash flow analyses. We have improved the organization of our credit files and have made efforts to attain appraisal updates in a timelier manner. In addition to the internal review of credit quality, we engaged an independent credit consulting firm to conduct an analysis of our loan portfolio. We also increased staffing in credit administration and established and staffed a separate special assets function to manage problem assets.

          Although we have made significant enhancements to our loan management processes to address these issues, we can give you no assurances that we will be able to successfully manage our problem loans, our loan administration, and origination process. If we are unable to do so in a timely manner, our loan losses could increase significantly and this could have a material adverse effect on our results of operations and the value of, or market for, our Common Stock.

If we fail to meet the continued listing requirements of the NASDAQ Global Select Market, our Common Stock could be delisted.

          Our Common Stock is listed on the NASDAQ Global Select Market. As a NASDAQ Global Select Market listed company, we are required to comply with the continued listing requirements of the NASDAQ Marketplace Rules to maintain our listing status. Among these continued listing requirements is the requirement that our Common Stock maintain a minimum closing bid price of at least $1.00 per share. Our Common Stock has recently begun to trade below the minimum closing bid price requirement under the NASDAQ Marketplace Rules. If the closing bid price for our Common Stock falls below $1.00 for 30 consecutive trading days, NASDAQ will deliver a deficiency letter to us for failing to meet this continued listing requirement and require compliance with this requirement within 180 days after the deficiency unless another extension is permitted under the NASDAQ Marketplace Rules. One option available to the Company for addressing this issue would be for the Company to implement a reverse stock split, which, if implemented, could raise the price of the Company’s Common Stock on September 28, 2010, the Company’s shareholders authorized management to effect a reverse stock split at management’s discretion. If, however, we are unable to implement a reverse stock split for any reason and/or if we are unable to otherwise regain compliance with NASDAQ continued listing requirements, our Common Stock could be delisted.

          Delisting from the NASDAQ Global Select Market could reduce the ability of investors to purchase or sell our Common Stock as quickly and as inexpensively as they have done historically and could subject transactions in our securities to the penny stock rules. Furthermore, failure to obtain listing on another market or exchange may make it more difficult for traders to sell our securities. Broker-dealers may be less willing or able to sell or make a market in our securities because of the penny stock disclosure rules. Not maintaining a listing on a major stock market or exchange may result in a material decline in the market price of our Common Stock due to a decrease in liquidity and reduced interest by institutions and individuals in investing in our securities.

          Delisting could also make it more difficult for us to raise capital in the future.

Governmental regulation and regulatory actions against us may impair our operations or restrict our growth.

          We are subject to significant governmental supervision and regulation. These regulations are intended primarily for the protection of depositors, rather than shareholders. Statutes and regulations affecting our business may be changed at any time and the interpretation of these statutes and regulations by examining authorities may also change. Within the last several years, Congress and the President have passed and enacted significant changes to these statutes and regulations. There can be no assurance that such changes to the statutes and regulations or to their interpretation will not adversely affect our business. In addition to governmental supervision and regulation, we are subject to changes in other federal and state laws, including changes in tax laws, which could materially affect the banking industry.

          We are subject to the rules and regulations of the Federal Reserve Bank. If we fail to comply with federal and state bank regulations, the regulators may limit our activities or growth and impose monetary penalties, which could severely limit or end our operations. Banking laws and regulations change from time to time. Bank regulations can hinder our ability to compete with financial services companies that are not regulated in the same manner or are less regulated. Federal and state bank regulatory agencies regulate many aspects of our operations. These areas include:

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The level of capital that must be maintained;

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The kinds of activities that can be engaged in;

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The kinds and amounts of investments that can be made;

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The locations of our financial centers;

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Insurance of deposits and the premiums that we must pay for this insurance; and

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The amount of cash we must set aside as reserves for deposits.

          Bank regulatory authorities have the authority to bring enforcement actions against banks and bank holding companies for unsafe or unsound practices in the conduct of their businesses or for violations of any law, rule, or regulation.

          We are aware of and previously disclosed to our regulators that a $21.5 million loan from Bank of Hampton Roads to the Company is inadequately secured in violation of Regulation W promulgated by the Federal Reserve Bank and remains outstanding as of the date of this Prospectus. Possible enforcement actions against us could include the issuance of a cease-and-desist order that could be judicially enforced; the imposition of civil monetary penalties; the issuance of directives to increase capital or enter into a strategic transaction, whether by merger or otherwise, with a third party; the appointment of a conservator or receiver; the termination of insurance of deposits; the issuance of removal and prohibition orders against institution-affiliated parties; and the enforcement of such actions through injunctions or restraining orders. Any such regulatory action may have a material adverse effect on our ability to operate our bank subsidiaries and execute our strategy.

If the value of real estate in the markets we serve were to further decline materially, a significant portion of our loan portfolio could become further under-collateralized, which could have a material adverse effect on us.

          With approximately three-fourths of our loans concentrated in the regions of Hampton Roads, Richmond, and the Eastern Shore of Virginia and the Triangle region of North Carolina, a decline in local economic conditions could adversely affect the value of the real estate collateral securing our loans. Moreover, our markets in Wilmington, North Carolina and the Outer Banks of North Carolina have been especially hard hit by recent declines in real estate values. A further decline in property values would diminish our ability to recover on defaulted loans by selling the real estate collateral, making it more likely that we would suffer losses on defaulted loans. Additionally, a decrease in asset quality could require additions to our allowance for loan losses through increased provisions for loan losses, which would negatively impact our profits. Also, a decline in local economic conditions may have a greater effect on our earnings and capital than on the earnings and capital of financial institutions whose real estate loan portfolios are more geographically diverse. Real estate values are affected by various factors in addition to local economic conditions, including, among other things, changes in general or regional economic conditions, governmental rules or policies, and natural disasters.

Our commercial real estate and equity line lending may expose us to a greater risk of loss and hurt our earnings and profitability.

          Our business strategy centers, in part, on offering commercial and equity line loans secured by real estate in order to generate interest income. These types of loans generally have higher yields and shorter maturities than traditional one-to-four family residential mortgage loans. At September 30, 2010, commercial and residential loans secured by real estate totaled $1.23 billion, which represented 55% of total loans. Such loans increase our credit risk profile relative to other financial institutions that have lower concentrations of commercial real estate and equity line loans.

          Loans secured by commercial real estate properties are generally for larger amounts and involve a greater degree of risk than one-to-four family residential mortgage loans. Payments on loans secured by these properties generally are dependent on the income produced by the underlying properties which, in turn, depends on the successful operation and management of the properties. Accordingly, repayment of these loans is subject to adverse conditions in the real estate market or the local economy. While we seek to minimize these risks in a variety of ways, there can be no assurance that these measures will protect against credit-related losses.

          Equity line loans typically involve a greater degree of risk than one-to-four family residential mortgage loans. Equity line lending allows a customer to access an amount up to their line of credit for the term specified in their agreement. At the expiration of the term of an equity line, a customer may have the entire principal balance outstanding as opposed to a one-to-four family residential mortgage loan where the principal is disbursed entirely at closing and amortizes throughout the term of the loan. We cannot predict when and to what extent our customers will access their equity lines. While we seek to minimize this risk in a variety of ways, including attempting to employ conservative underwriting criteria, there can be no assurance that these measures will protect against credit-related losses.

A significant amount of our loan portfolio contains loans used to finance construction and land development and these types of loans subject our loan portfolio to a higher degree of credit risk.

          Although we are no longer making new loans to finance construction and land development, a significant amount of our portfolio contains such loans. Construction financing typically involves a higher degree of credit risk than financing on improved, owner-occupied real estate. Risk of loss on a construction loan is largely dependent upon the accuracy of the initial estimate of the property’s value at completion of construction, the marketability of the property, and the bid price and estimated cost (including interest) of construction. If the estimate of construction costs proves to be inaccurate, we may be required to advance funds beyond the amount originally committed to permit completion of the project. If the estimate of the value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project whose value is insufficient to assure full repayment. When lending to builders, the cost of construction breakdown is provided by the builder, as well as supported by the appraisal. Although our underwriting criteria were designed to evaluate and minimize the risks of each construction loan, there can be no guarantee that these practices will have safeguarded against material delinquencies and losses to our operations.

          At September 30, 2010, we had loans of $560.2 million or 27% of total loans outstanding to finance construction and land development. Construction and land development loans are dependent on the successful completion of the projects they finance, however, in many cases such construction and development projects in our primary market areas are not being completed in a timely manner, if at all.

Our lending on vacant land may expose us to a greater risk of loss and may have an adverse effect on results of operations.

          A portion of our residential and commercial lending is secured by vacant or unimproved land. Loans secured by vacant or unimproved land are generally more risky than loans secured by improved property for one-to-four family residential mortgage loans. Since vacant or unimproved land is generally held by the borrower for investment purposes or future use, payments on loans secured by vacant or unimproved land will typically rank lower in priority to the borrower than a loan the borrower may have on their primary residence or business. These loans are susceptible to adverse conditions in the real estate market and local economy.

Difficult market conditions have adversely affected our industry.

          The global and U.S. economies continue to experience a protracted slowdown in business activity as a result of disruptions in the financial system, including a lack of confidence in the worldwide credit markets. Currently, the U.S. economy remains in the midst of one of its longest economic recessions in recent history. Dramatic declines in the housing market over more than the past 24 months, with falling home prices and increasing foreclosures, unemployment, and under-employment, have negatively impacted the credit performance of real estate related loans and resulted in significant write-downs of asset values by financial institutions. These write-downs, initially of asset-backed securities but spreading to other securities and loans, have caused many financial institutions to seek additional capital, to reduce or eliminate dividends, to merge with larger and stronger institutions and, in some cases, to fail.

          Reflecting concern about the stability of the financial markets and the strength of counterparties, many lenders and institutional investors have reduced or ceased providing funding to borrowers, including to other financial institutions.

Market turmoil and tightening of credit have led to an increased level of commercial and consumer delinquencies, lack of consumer confidence, increased market volatility, and widespread reduction of business activity generally. The resulting economic pressure on consumers and lack of confidence in the financial markets could continue to adversely affect our business, financial condition, and results of operations. Market developments may continue to affect consumer confidence levels and may cause adverse changes in payment patterns, causing increases in delinquencies and default rates, which may impact our charge-offs and provision for credit losses. A worsening of these conditions would likely exacerbate the adverse effects of these difficult market conditions on us and could have a material adverse effect on the value of, or market for, our Common Stock.

Our ability to maintain adequate sources of funding may be negatively impacted by the current economic environment which may, among other things, impact our ability to resume the payment of dividends or satisfy our obligations.

          Our access to funding sources in amounts adequate to finance our activities on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. In managing our balance sheet, a primary source of funding is customer deposits. Our ability to continue to attract these deposits and other funding sources is subject to variability based upon a number of factors including volume and volatility in the securities markets and the relative interest rates that we are prepared to pay for these liabilities. Further, Bank of Hampton Roads is prohibited under the Written Agreement with the Reserve Bank from accepting new brokered deposits. Our potential inability to maintain adequate sources of funding may, among other things, impact our ability to resume the payment of dividends or satisfy our obligations.

Our ability to maintain adequate sources of liquidity may be negatively impacted by the current economic environment which may, among other things, impact our ability to pay dividends or satisfy our obligations.

          Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of investments or loans, the issuance of equity and debt securities, and other sources could have a substantial negative affect on our liquidity. Factors that could detrimentally impact our access to liquidity sources include operating losses; rising levels of non-performing assets; a decrease in the level of our business activity as a result of a downturn in the markets in which our loans or deposits are concentrated or as a result of a loss of confidence in us by our customers, lenders, and/or investors; or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial industry in light of the turmoil faced by banking organizations and the continued deterioration in credit markets. Under current market conditions, the confidence of depositors, lenders, and investors is critical to our ability to maintain our sources of liquidity.

          The management of liquidity risk is critical to the management of our business and to our ability to service our customer base. In managing our balance sheet, a primary source of liquidity is customer deposits. Our ability to continue to attract these deposits and other funding sources is subject to variability based upon a number of factors including volume and volatility in the securities markets and the relative interest rates that we are prepared to pay for these liabilities. The availability and level of deposits and other funding sources, including borrowings and the issuance of equity and debt securities, is highly dependent upon the perception of the liquidity and creditworthiness of the financial institution, and such perception can change quickly in response to market conditions or circumstances unique to a particular company. Concerns about our financial condition or concerns about our credit exposure to other persons could adversely impact our sources of liquidity, financial position, regulatory capital ratios, results of operations, and our business prospects.

The current economic environment may negatively impact our ability to maintain required capital levels or otherwise negatively impact our financial condition, which may, among other things, limit our access to certain sources of funding and liquidity.

          If the level of deposits were to materially decrease, we would have to raise additional funds by increasing the interest that we pay on certificates of deposit or other depository accounts, seek other debt or equity financing, or draw upon our available lines of credit. Shore Bank relies on brokered deposits (and Bank of Hampton Roads has historically relied on such deposits) and we rely on commercial retail deposits as well as advances from the Federal Home Loan Bank (the “FHLB”) and the Federal Reserve Bank discount window to fund our operations.

Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition or the results of operations or financial condition of the FHLB or market conditions were to change or because we are restricted from doing so by regulatory restrictions. For example, Bank of Hampton Roads is prohibited from obtaining brokered deposits pursuant to the terms of its Written Agreement with the Federal Reserve Bank. Additionally, the FHLB or Federal Reserve Bank could limit our access to additional borrowings. We constantly monitor our activities with respect to liquidity and evaluate closely our utilization of our cash assets; however, there can be no assurance that our liquidity or the cost of funds to us may not be materially and adversely impacted as a result of economic, market, or operational considerations that we may not be able to control.

We may face increasing deposit-pricing pressures, which may, among other things, reduce our profitability.

          Deposit pricing pressures may result from competition as well as changes to the interest rate environment. Under current conditions, pricing pressures also may arise from depositors who demand premium interest rates from what they perceive to be a troubled financial institution. Current economic conditions have intensified competition for deposits. The competition has had an impact on interest rates paid to attract deposits as well as fees charged on deposit products. In addition to the competitive pressures from other depository institutions, we face heightened competition from non-depository financial products such as securities and other alternative investments.

          Furthermore, technology and other market changes have made it more convenient for bank customers to transfer funds for investing purposes. Bank customers also have greater access to deposit vehicles that facilitate spreading deposit balances among different depository institutions to maximize FDIC insurance coverage. In addition to competitive forces, we also are at risk from market forces as they affect interest rates. It is not uncommon when interest rates transition from a low interest rate environment to a rising rate environment for deposit and other funding costs to rise in advance of yields on earning assets. In order to keep deposits required for funding purposes, it may be necessary to raise deposit rates without commensurate increases in asset pricing in the short term. Finally, we may see interest rate pricing pressure from depositors concerned about our financial condition and levels of non-performing assets.

We may continue to incur losses if we are unable to successfully manage interest rate risk.

          Our profitability depends in substantial part upon the spread between the interest rates earned on investments and loans and the interest rates paid on deposits and other interest-bearing liabilities. These rates are normally in line with general market rates and rise and fall based on management’s view of our needs. Changes in interest rates will affect our operating performance and financial condition in diverse ways including the pricing of securities, loans and deposits, and the volume of loan originations in our mortgage banking business, and could result in decreases to our net income. Our net interest income will be adversely affected if market interest rates change so that the interest we pay on deposits and borrowings increases faster than the interest we earn on loans and investments. This could, in turn, have a material adverse affect on the value of our Common Stock.

Our future success is dependent on our ability to compete effectively in the highly competitive banking industry.

          We face vigorous competition from other banks and other financial institutions, including savings and loan associations, savings banks, finance companies, and credit unions for deposits, loans, and other financial services that serve our market area. A number of these banks and other financial institutions are significantly larger than we are and have substantially greater access to capital and other resources, as well as larger lending limits and branch systems, and offer a wider array of banking services. Many of our non-bank competitors are not subject to the same extensive regulations that govern us. As a result, these non-bank competitors have advantages over us in providing certain services. While we believe we compete effectively with these other financial institutions serving our primary markets, we may face a competitive disadvantage to larger institutions. If we have to raise interest rates paid on deposits or lower interest rates charged on loans to compete effectively, our net interest margin and income could be negatively affected. Failure to compete effectively to attract new, or to retain existing, clients may reduce or limit our margins and our market share and may adversely affect our results of operations, financial condition, growth, and the value of our Common Stock.

Our operations and customers might be affected by the occurrence of a natural disaster or other catastrophic event in our market area.

          Because a substantial portion of our loans are with customers and businesses located in the central and coastal portions of Virginia, North Carolina, and Maryland, catastrophic events, including natural disasters such as hurricanes which historically struck the east coast of the United States with some regularity or terrorist attacks could disrupt our operations. Any of these natural disasters or other catastrophic events could have a negative impact on our financial centers and customer base as well as collateral values and the strength of our loan portfolio. Any natural disaster or catastrophic event affecting us could have a material adverse impact on our operations and the value of our Common Stock.

We face a variety of threats from technology based frauds and scams.

          Financial institutions are a prime target of criminal activities through various channels of information technology. We attempt to mitigate risk from such activities through policies, procedures, and preventative and detective measures. In addition, we maintain insurance coverage designed to provide a level of financial protection to our business. However, risks posed by business interruption, fraud losses, business recovery expenses, and other potential losses or expenses that may be experienced from a significant event are not readily predictable and, therefore, could have an impact on our results of operations.

Virginia law and the provisions of our Articles of Incorporation and Bylaws could deter or prevent takeover attempts by a potential purchaser of our Common Stock that would be willing to pay you a premium for your shares of our Common Stock.

          Our Articles of Incorporation, as well as the Company’s Bylaws (the “Bylaws”), contain provisions that may be deemed to have the effect of discouraging or delaying uninvited attempts by third parties to gain control of the Company. These provisions include the division of our Board of Directors into classes and the ability of our board to set the price, term, and rights of, and to issue, one or more additional series of our preferred stock. Our Articles of Incorporation and Bylaws also provide for a classified board of directors, with each member serving a three-year term, and do not provide for the ability of stockholders to call special meetings.

          Similarly, the Virginia Stock Corporation Act contains provisions designed to protect Virginia corporations and employees from the adverse effects of hostile corporate takeovers. These provisions reduce the possibility that a third party could effect a change in control without the support of our incumbent directors. These provisions may also strengthen the position of current management by restricting the ability of shareholders to change the composition of the board, to affect its policies generally, and to benefit from actions that are opposed by the current board.

Risks Factors Related to the Offering

The subscription price determined for the Rights Offering is not necessarily an indication of the fair value of our Common Stock.

          The per share subscription price is not necessarily related to our book value, tangible book value, multiple of earnings or any other established criteria of fair value and may or may not be considered the fair value of our Common Stock to be offered in the Rights Offering. After the date of this prospectus, our shares of Common Stock may trade at prices below the subscription price.

If you do not exercise your subscription rights, your percentage ownership will be diluted.

          We will issue 100,000,000 shares of our Common Stock in the Rights Offering, either to Eligible Shareholders or privately to Investors pursuant to their backstop commitment (subject to the terms of the Investment Agreements). If you choose not to exercise your Basic Subscription Rights prior to the expiration of the Rights Offering, your relative ownership interest in our Common Stock will be diluted relative to shareholders who exercise their subscription rights.

The subscription rights are not transferable and there is no market for the subscription rights.

          You may not sell, give away or otherwise transfer your subscription rights. The subscription rights are only transferable by operation of law. Because the subscription rights are non-transferable, there is no market or other means for you to directly realize any value associated with the subscription rights. You must exercise the subscription rights and acquire shares of our Common Stock to realize any potential value from your subscription rights.

Because our management will have broad discretion over the use of the net proceeds from the Rights Offering and any sale of shares of Common Stock to the Investors through their backstop commitment, you may not agree with how we use the proceeds, and we may not invest the proceeds successfully.

          While we currently anticipate that we will use the net proceeds of the Rights Offering and any sale of shares of Common Stock to the Investors through their backstop commitment to make capital contributions to our subsidiary banks and for other general corporate purposes, out management may allocate the proceeds as it deems appropriate. In addition, market factors may require our management to allocate portions of the proceeds for other purposes. Accordingly, you will be relying on the judgment of our management with regard to the use of the proceeds of the Rights Offering and any sale of shares of Common Stock to the Investors through their backstop commitment, and you will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. It is possible that the proceeds will be invested in a way that does not yield a favorable, or any, return for us.

If you do not act promptly and follow the subscription instructions, your exercise of subscription rights will be rejected.

          If you desire to purchase shares in the Rights Offering, you must act promptly to ensure that the subscription agent actually receives all required forms and payments before the expiration of the Rights Offering at 5:00 p.m., Eastern Time, on, 2010, unless we extend the Rights Offering for additional periods. If you are a beneficial owner of shares, you must act promptly to ensure that your broker, dealer, custodian bank or other nominee acts for you and that the subscription agent receives all required forms and payments before the Rights Offering expires. We are not responsible if your nominee fails to ensure that the subscription agent receives all required forms and payments before the Rights Offering expires. If you fail to complete and sign the required subscription forms, send an incorrect payment amount, or otherwise fail to follow the subscription procedures that apply to the exercise of your subscription rights before the Rights Offering expires, the subscription agent will reject your subscription or accept it only to the extent of the payment received. Neither we nor our subscription agent undertakes any responsibility or action to contact you concerning an incomplete or incorrect subscription form or payment, nor are we under any obligation to correct such forms or payment. We have the sole discretion to determine whether a subscription exercise properly complies with the subscription procedures.

You will not be able to sell the shares you buy in the Rights Offering until you receive your stock certificates or your account is credited with the Common Stock.

          If you purchase shares in the Rights Offering by submitting a rights certificate and payment, we will mail you a stock certificate as soon as practicable after, December 10, 2010, or such later date as to which the Rights Offering may be extended. If your shares are held by a broker, dealer, custodian bank or other nominee and you purchase shares, your account with your nominee will be credited with the shares of our Common Stock you purchased in the Rights Offering as soon as practicable after the expiration of the Rights Offering, or such later date as to which the Rights Offering may be extended. Until your stock certificates have been delivered or your account is credited, you may not be able to sell your shares even though the Common Stock issued in the Rights Offering will be listed for trading on The NASDAQ Global Select Market. The stock price may decline between the time you decide to sell your shares and the time you are actually able to sell your shares.

We may cancel the Rights Offering at any time prior to the expiration of the Rights Offering, and neither we nor the subscription agent will have any obligation to you except to return your exercise payments.

          We may, in our sole discretion, decide not to continue with the Rights Offering or cancel the Rights Offering prior to the expiration of the Rights Offering. If the Rights Offering is cancelled, all subscription payments received by the subscription agent will be returned, without interest or penalty, as soon as practicable.

The backstop commitment and the Second Closing are subject to certain conditions, some of which are unrelated to the Rights Offering. As a result, we may not close on or receive the funds for the backstop commitment or the Second Closing.

          The Investors’ backstop commitment and requirement to fund the Second Closing are subject to several conditions, some of which are unrelated to the Rights Offering. If those conditions are not met, the Investors will not be obligated to purchase any shares of our Common Stock through the backstop commitment or participate in the Second Closing.

          With respect to the Rights Offering, the covenant of each Investor to backstop is subject to the simultaneous backstop by the other Investors. With respect to the issuance of shares in connection with the Second Closing, the Investment Agreements provide for various additional conditions in order for the Second Closing to be effected, including: the Rights Offering must have been consummated; the Company must received (or shall have received concurrently with the Second Closing) proceeds in the aggregate amount of not less than $275,000,000 from Investors; there shall have been no violation of banking law or regulation triggered by the issuance of Common Stock or warrants; the issuance of Common Stock or warrants shall not result in any Investor being required to file a notice with the certain regulators; the issuance of Common Stock or warrants shall not cause any Investor (together with any person whose ownership of voting securities would be aggregated with such Investor) to exceed their relevant ownership threshold (24.9% or 9.9%); and there shall be no governmental consents required.

          Your commitment to purchase shares in the Rights Offering will be binding on you not later than December 10, 2010. The funding for the backstop and the Second Closing will not occur until after the Rights Offering is completed. When deciding whether to purchase additional shares of our Common Stock in the offering, you should not assume that we will be able to close on or receive the funds for the backstop commitment or the Second Closing.

Risks Factors Related to Our Common Stock

Because we will issue additional shares of Common Stock, your investment could be subject to substantial dilution.

          In addition to the 100,000,000 shares of Common Stock to be issued in the Rights Offering and backstop, we anticipate additional funding in the form of equity financing from the sale of our Common Stock and currently plan to issue 50,000,000 million additional shares of Common Stock without further shareholder approval in the Second Closing. As such, your investment could be subject to substantial dilution. Dilution is the difference between what you pay for your stock and the net tangible book value per share immediately after the additional shares are sold by us.

The market for our Common Stock historically has experienced significant price and volume fluctuations.

          The market for our Common Stock historically has experienced and may continue to experience significant price and volume fluctuations similar to those experienced by the broader stock market in recent years. Generally, the fluctuations experienced by the broader stock market have affected the market prices of securities issued by many companies for reasons unrelated to their operating performance and may adversely affect the price of our Common Stock. In addition, our announcements of our quarterly operating results, changes in general conditions in the economy or the financial markets and other developments affecting us, our affiliates or our competitors could cause the market price of our Common Stock to fluctuate substantially.

We are not paying dividends on our Common Stock and currently are prevented from doing so. The failure to resume paying dividends on our Common Stock may adversely affect us.

          We historically paid cash dividends prior to the third quarter of 2009. During the third quarter of 2009, we suspended dividend payments on our Common Stock. We are prevented by our regulators from paying dividends until our financial position improves. In addition, the retained deficit of Bank of Hampton Roads, our principal banking subsidiary is currently $319.9 million. Absent permission from the Virginia State Corporation Commission, Bank of Hampton Roads may pay dividends to us only to the extent of positive accumulated retained earnings. It is unlikely in the near term that we would be able to pay dividends if Bank of Hampton Roads cannot pay dividends to us. As a result, there is no assurance if or when we will be able to resume paying cash dividends. Even if we are allowed by our regulators to resume paying dividends again, the Exchange Agreement provides that, until the earlier of December 31, 2011 or such time as the Treasury ceases to own any debt or equity securities of the Company, we must obtain the consent of the Treasury prior to declaring or paying any cash dividend of more than $0.006 per share of our Common Stock.

          In addition, all dividends are declared and paid at the discretion of our Board of Directors and are dependent upon our liquidity, financial condition, results of operations, regulatory capital requirements, and such other factors as our Board of Directors may deem relevant. The ability of our banking subsidiaries to pay dividends to us is also limited by obligations to maintain sufficient capital and by other general restrictions on dividends that are applicable to our banking subsidiaries. If we do not satisfy these regulatory requirements, we are unable to pay dividends on our Common Stock.

          Holders of our Common Stock are only entitled to receive such dividends as our Board of Directors may declare out of funds legally available for such payments. We are subject to formal regulatory and state law restrictions that do not permit us to declare or pay any dividend without the prior written approval of our banking regulators. Although we can seek to obtain a waiver of this prohibition, our regulators may choose not to grant such a waiver, and we would not expect to be granted a waiver or be released from this obligation until our financial performance and retained earnings improve significantly. Therefore, we may not be able to resume payments of dividends in the future.

Risks Relating to Market, Legislative, and Regulatory Events

Our business, financial condition, and results of operations are highly regulated and could be adversely affected by new or changed regulations and by the manner in which such regulations are applied by regulatory authorities.

          Current economic conditions, particularly in the financial markets, have resulted in government regulatory agencies placing increased focus on and scrutiny of the financial services industry. The U.S. Government has intervened on an unprecedented scale, responding to what has been commonly referred to as the financial crisis. In addition to participating in the Treasury’s Capital Purchase Program (“CPP”) and Capital Assistance Program, the U.S. Government has taken steps that include enhancing the liquidity support available to financial institutions, establishing a commercial paper funding facility, temporarily guaranteeing money market funds and certain types of debt issuances, and increasing insured deposits. These programs subject us and other financial institutions who have participated in these programs to additional restrictions, oversight and/or costs that may have an impact on our business, financial condition, results of operations, or the price of our Common Stock.

          Compliance with such regulation and scrutiny may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital, and limit our ability to pursue business opportunities in an efficient manner. We also will be required to pay significantly higher FDIC premiums because market developments have significantly depleted the insurance fund of the FDIC and reduced the ratio of reserves to insured deposits. The increased costs associated with anticipated regulatory and political scrutiny could adversely impact our results of operations.

          New proposals for legislation continue to be introduced in the U.S. Congress that could further substantially increase regulation of the financial services industry. Federal and state regulatory agencies also frequently adopt changes to their regulations and/or change the manner in which existing regulations are applied. We cannot predict whether any pending or future legislation will be adopted or the substance and impact of any such new legislation on us. Additional regulation could affect us in a substantial way and could have an adverse effect on our business, financial condition, and results of operations.

Banking regulators have broad enforcement power, but regulations are meant to protect depositors and not investors.

          We are subject to supervision by several governmental regulatory agencies. The regulators’ interpretation and application of relevant regulations, are beyond our control, may change rapidly and unpredictably, and can be expected to influence our earnings and growth. In addition, we have entered into a Written Agreement with the Reserve Bank and Virginia Bureau. For a discussion regarding risks related to the Written Agreement, see “We have entered into the Written Agreement with the Federal Reserve Bank of Richmond and the Virginia Bureau of Financial Institutions, which requires us to dedicate a significant amount of resources to complying with the agreement and may have a material adverse effect on our operations and the value of our securities.”

          All such government regulation may limit our growth and the return to our investors by restricting activities such as the payment of dividends, mergers with, or acquisitions by, other institutions, investments, loans and interest rates, interest rates paid on deposits, the use of brokered deposits, and the creation of financial centers. Although these regulations impose costs on us, they are intended to protect depositors. The regulations to which we are subject may not always be in the best interests of investors.

The fiscal, monetary, and regulatory policies of the Federal Government and its agencies could have a material adverse effect on our results of operations.

          The Board of Governors of the Federal Reserve System regulates the supply of money and credit in the United States. Its policies determine, in large part, the cost of funds for lending and investing and the return earned on those loans and investments, both of which affect our net interest margin. It also can materially decrease the value of financial assets we hold, such as debt securities. Its policies also can adversely affect borrowers, potentially increasing the risk that they may fail to repay their loans.

          In addition, as a public company we are subject to securities laws and standards imposed by the Sarbanes-Oxley Act. Because we are a relatively small company, the costs of compliance are disproportionate compared with much larger organizations. Continued growth of legal and regulatory compliance mandates could adversely affect our expenses, future results of operations, and the value of our Common Stock. In addition, the government and regulatory authorities have the power to impose rules or other requirements, including requirements that we are unable to anticipate, that could have an adverse impact on our results of operations and the value of our Common Stock.

The recently enacted Dodd-Frank Act may adversely affect our business, financial condition, and results of operations.

          On July 21, 2010, President Obama signed the Dodd-Frank Act into law. The Dodd-Frank Act makes extensive changes to the laws regulating financial services firms and requires significant rule-making. In addition, the law mandates multiple studies, which could result in additional legislative or regulatory action. While the full effects of the Dodd-Frank Act on the Company cannot yet be determined, the new law is generally perceived as negatively impacting the financial services industry and may result in an increase in our compliance costs and reduction in our interchange fees.

          Although management does not expect the Dodd-Frank Act to have a material adverse effect on the Company, it is not possible to predict at this time all the effects the Dodd-Frank Act will have on the Company and the rest of the financial institution industry. It is possible that the Company’s interest expense could increase and deposit insurance premiums could change and steps may need to be taken to increase qualifying capital.

The soundness of other financial institutions could adversely affect us.

          Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. As a result, defaults by, or even rumors or questions about, one or more financial services institutions, or the financial services industry, generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be liquidated at prices sufficient to recover the full amount of the financial instrument exposure due us. There is no assurance that any such losses would not materially and adversely affect our results of operations and the value of, or market for, our Common Stock.

CAUTION ABOUT FORWARD-LOOKING STATEMENTS

          Where appropriate, statements in this Prospectus may contain the insights of management into known events and trends that have or may be expected to have a material effect on our operations and financial condition. The information presented may also contain certain forward-looking statements regarding future financial performance, which are not historical facts and which involve various risks and uncertainties.

          We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of invoking these safe harbor provisions. These forward-looking statements represent plans, estimates, objectives, goals, guidelines, expectations, intentions, projections and statements of our beliefs concerning future events, business plans, objectives, expected operating results and the assumptions upon which those statements are based. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements.

These forward-looking statements are subject to significant uncertainties because they are based upon or are affected by risk factors described in the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as amended, and our Quarterly Reports on Forms 10-Q for the quarters ended March 31, 2010, as amended, June 30, 2010, and September 30, 2010, and include the following risks related to our business:

•

We incurred significant losses in 2009 and through the third quarter of 2010 and may continue to do so in the future, and we can make no assurances as to when we will be profitable;

•

We may need to raise additional capital that may not be available to us;

•

The Company has restated its financial statements, which may have a future adverse effect;

•

Bank of Hampton Roads is restricted from accepting new brokered deposits, and an inability to maintain our regulatory capital position could adversely affect our operations;

•

The Company has received a grand jury subpoena from the United States Department of Justice, Criminal Division and, although the Company is not a target at this time, and we do not believe we will become a target, there can be no assurances as to the timing or eventual outcome of the related investigation;

•

Current and future increases in FDIC insurance premiums, including the FDIC special assessment imposed on all FDIC-insured institutions, will decrease our earnings. In addition, FDIC insurance assessments will likely increase from the prior inability to maintain a well- capitalized status, which would further decrease earnings;

•

We have entered into a written agreement with the Federal Reserve Bank of Richmond and the Virginia Bureau of Financial Institutions, which requires us to designate a significant amount of resources to complying with the agreement and may have a material adverse effect on our operations and the value of our securities;

•

Our estimate for losses in our loan portfolio may be inadequate, which would cause our results of operations and financial condition to be adversely affected;

•

We have had and may continue to have large numbers of problem loans and difficulties with our loan administration, which could increase our losses related to loans;

•

If we fail to meet the continued listing requirements of the NASDAQ Global Select Market, our Common Stock could be delisted;

•

Governmental regulation and regulatory actions against us may impair our operations or restrict our growth;

•

If the value of real estate in the markets we serve were to further decline materially, a significant portion of our loan portfolio could become further under-collateralized, which could have a material adverse effect on us;

•

Our commercial real estate and equity line lending may expose us to a greater risk of loss and hurt our earnings and profitability;

•

A significant amount of our loan portfolio contains loans used to finance construction and land development and these types of loans subject our loan portfolio to a higher degree of credit risk;

•

Our lending on vacant land may expose us to a greater risk of loss and may have an adverse effect on results of operations;

•

Difficult market conditions have adversely affected our industry;

•

Our ability to maintain adequate sources of funding may be negatively impacted by the current economic environment which may, among other things, impact our future ability to pay dividends or satisfy our obligations;

•

Our ability to maintain adequate sources of liquidity may be negatively impacted by the current economic environment which may, amount other things, impact our ability to pay dividends or satisfy our obligations;

•

The current economic environment may negatively impact our ability to maintain required capital levels or otherwise negatively impact our financial condition, which may, among other things, limit access to certain sources of funding and liquidity;

•

We may face increasing deposit-pricing pressures, which may, among other things, reduce our profitability;

•

We may continue to incur losses if we are unable to successfully manage interest rate risk;

•

Our future success is dependent on our ability to compete effectively in the highly competitive banking industry;

•

Our operations and customers might be affected by the occurrence of a natural disaster or other catastrophic event in our market area;

•

We face a variety of threats from technology based frauds and scams;

•

Virginia law and the provisions of our Articles of Incorporation and Bylaws could deter or prevent takeover attempts by a potential purchaser of our Common Stock that would be willing to pay you a premium for your shares of our Common Stock;

•

The subscription price determined for the Rights Offering is not necessarily an indication of the fair value of our Common Stock;

•

If you do not exercise your subscription rights, your percentage ownership will be diluted;

•

The subscription rights are not transferable and there is no market for the subscription rights;

•

Because our management will have broad discretion over the use of the net proceeds from the Rights Offering and any sale of shares of Common Stock to the Investors through their backstop commitment, you may not agree with how we use the proceeds, and we may not invest the proceeds successfully;

•

If you do not act promptly and follow the subscription instructions, your exercise of subscription rights will be rejected;

•

You will not be able to sell the shares you buy in the Rights Offering until you receive your stock certificates or your account is credited with the Common Stock;

•

We may cancel the Rights Offering at any time prior to the expiration of the Rights Offering, and neither we nor the subscription agent will have any obligation to you except to return your exercise payments;

•

The backstop commitment and the Second Closing are subject to certain conditions, some of which are unrelated to the Rights Offering. As a result, we may not close on or receive the funds for the backstop commitment or the Second Closing;

•

Because we will issue additional shares of Common Stock, existing shareholders could be subject to substantial dilution;

•

The market for our Common Stock historically has experienced significant price and volume fluctuations;

•

We are not paying dividends on our Common Stock and currently are prevented from doing so. The failure to resume paying dividends on our Common Stock may adversely affect us;

•

Our business, financial condition, and results of operations are highly regulated and could be adversely affected by new or changed regulations and by the manner in which such regulations are applied by regulatory authorities;

•

Banking regulators have broad enforcement power, but regulations are meant to protect depositors and not investors;

•

The fiscal, monetary, and regulatory policies of the Federal Government and its agencies could have a material adverse effect on our results of operations;

•

The recently enacted Dodd-Frank Act may adversely affect our business, financial condition, and results of operations; and

•

The soundness of other financial institutions could adversely affect us.

          We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made, and advise readers that various factors could affect our financial performance and cause the actual results for future periods to differ materially from those anticipated or projected. For a discussion of these factors, you should carefully review the “Risk Factors” beginning on page S-22 of this Prospectus, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” starting on page S-48 and “Business” beginning on page S-63. In light of these risks, uncertainties and assumptions, the future events, developments or results described by our forward-looking statements in this Prospectus or in the documents referred to in this Prospectus could turn out to be materially different from those we discuss or imply.

          We do not intend to update or revise our forward-looking statements after the date on the front cover of this Prospectus, and you should not expect us to do so.

PLAN OF DISTRIBUTION

           On or about November 16, 2010, we will distribute at no cost the subscription rights, rights certificates and copies of this Prospectus to our shareholders of record as of 5:00 p.m., Eastern Time, on September 29, 2010. If you wish to exercise your subscription rights, you must timely comply with the exercise procedures described below. See “The Rights Offering – Method of Exercising Subscription Rights.”

          Each Right will entitle you to a Basic Subscription Right to purchase 2.2698 shares of Common Stock at a subscription price of $0.40 per share and an over-subscription privilege. If you hold a Right and fully exercise your Basic Subscription Rights, you may also subscribe for an unlimited additional whole number of common shares pursuant to the over-subscription privilege, subject to availability, provided that (i) no Eligible Shareholder shall thereby exceed, together with any other person with whom such shareholder may be aggregated under applicable law, 4.9% beneficial ownership of the Company’s equity securities and (ii) the aggregate purchase price of all common shares purchased in the Rights Offering shall not exceed $40 million.

          If you purchase all of the shares available to you pursuant to your Basic Subscription Rights, you may also choose to purchase a portion of any shares that other shareholders do not purchase by exercising their Basic Subscription Rights. If sufficient shares are available for offer pursuant to the Rights Offering, we will seek to honor the over-subscription requests in full. If over-subscription requests exceed the number of shares available, however, we will allocate the available shares pro rata among the shareholders exercising the over-subscription privilege in proportion to the number of shares of our Common Stock each of those shareholders owned on the Record Date, relative to the number of shares owned on the Record Date by all shareholders exercising the over-subscription privilege. If this pro rata allocation results in any shareholder receiving a greater number of shares than the shareholder subscribed for pursuant to the exercise of the over-subscription privilege, then such shareholder will be allocated only that number of shares for which the shareholder oversubscribed, and the remaining shares will be allocated among all other shareholders exercising the over-subscription privilege on the same pro rata basis described above. The proration process will be repeated until all shares have been allocated.

          Subject to certain conditions contained in the Investment Agreements, the Investors have agreed to purchase from us, at $0.40 per share, all of the shares of Common Stock offered pursuant to the Rights Offering that are not purchased by Eligible Shareholders. For additional details, see “Questions and Answers Related to the Offering – How does the backstop commitment work?”

          Fractional shares resulting from the exercise of the Basic Subscription Rights and the over-subscription privileges will be eliminated by rounding down to the nearest whole share.

          The Rights Offering to shareholders will terminate at 5:00 p.m., Eastern Time, on December 10, 2010. Funds received by us from shareholders in the Rights Offering will be deposited with and held by us in a noninterest bearing escrow account until the closing of the Rights Offering. We do not intend to return the funds of purchasers if fewer than all of the shares offered are sold to Eligible Shareholders.

          The Rights Offering price was determined through a Special Committee of the Board of Directors. Among the factors considered in determining the price of the shares in this Rights Offering were: our desire to provide existing shareholders with the opportunity to purchase additional shares at the same price paid by Investors in the Private Placement, our history and prospects, our past and present earnings and trends of such earnings, our prospects for future earnings, our current performance and prospects of our segment of the banking industry, the general condition of the securities market at the time of the Rights Offering and the prices of equity securities of comparable companies. There can be no assurance that any of the shares will be sold in the Rights Offering.

          We have agreed to pay the subscription agent customary fees plus certain expenses in connection with the Rights Offering. We have not employed any brokers, dealers or underwriters in connection with the solicitation of exercise of subscription rights. Except as described in this section, we are not paying any other commissions, underwriting fees or discounts in connection with the Rights Offering.

Some of our employees may solicit responses from you as a holder of subscription rights, but we will not pay our employees any commissions or compensation for these services other than their normal employment compensation. We estimate that our total expenses in connection with the Rights Offering will be $247,852.

          If you have any questions, you should contact the information agent, Douglas J. Glenn, at the applicable telephone number and address set forth on page S-128.

USE OF PROCEEDS

          We estimate that the net proceeds of this offering, after deducting estimated expenses of this offering payable by us, will be approximately 39.8 million. We intend to use the net proceeds we receive from this offering to capitalize or subsidiary banks, as necessary, and for other general corporate purposes.

          Our management will retain a certain amount of discretion in deciding how to allocate the net proceeds of this offering. Until we designate the entire use of the net proceeds, we will invest them temporarily in liquid short-term securities.

MARKET FOR COMMON STOCK AND DIVIDEND POLICY

Price Range Of Common Stock

          Our Common Stock began trading on the NASDAQ Global Select Market under the symbol “HMPR” on September 12, 2007. Prior to listing on the NASDAQ Global Select Market, our Common Stock traded on the NASDAQ Capital Market starting on August 3, 2006.

          The following table sets forth, for the periods indicated, the high and low prices per share of our Common Stock as reported on the NASDAQ Global Select Market, along with the quarterly cash dividends per share declared. Per share prices do not include adjustments for markups, markdowns or commissions. The high and low sale prices per share for our Common Stock for each quarter of 2008 and 2009 and the fourth quarter of 2010 to date, as reported on the market at the time, and dividends declared during those periods were as follows:

										Cash
		Sales Price								Dividend
		High				Low				Declared
2008
First Quarter		$	12.45			$	9.50			$	0.11
Second Quarter			13.92				9.51				0.11
Third Quarter			13.00				10.07				0.11
Fourth Quarter			12.00				6.25				0.11
2009
First Quarter		$	9.50			$	5.81			$	0.11
Second Quarter			9.90				7.00				0.11
Third Quarter			8.25				4.96				0.00
Fourth Quarter			2.70				2.59				0.00
2010
First Quarter		$	2.51			$	1.56			$	0.00
Second Quarter			3.30				0.75				0.00
Third Quarter			1.39				0.75				0.00
Fourth Quarter through November 10, 2010			1.00				0.70				0.00

Dividend Policy

          We generally paid cash dividends on a quarterly basis until July 30, 2009, when our Board of Directors suspended the payment of common dividends. We currently are prevented by our regulators from paying dividends on our Common Stock until our financial position improves. See “Business — Government Supervision and Regulation — Written Agreement.”

          The primary source of funds for dividends paid by us to our shareholders is the dividends received from our subsidiaries. We are a legal entity separate and distinct from our subsidiaries. Substantially all of our cash revenues will result from dividends paid to us by our bank subsidiaries and interest earned on short term investments. Our bank subsidiaries are subject to laws and regulations that limit the amount of dividends that they can pay. Under Virginia law, a bank may not declare a dividend in excess of its accumulated retained earnings. Additionally, our bank subsidiaries may not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by the bank in any calendar year exceeds the total of the bank’s retained net income of that year to date, combined with its retained net income of the two preceding years, unless the dividend is approved by the Reserve Bank. Our bank subsidiaries may not declare or pay any dividend if, after making the dividend, the bank would be “undercapitalized,” as defined in the banking regulations.

          The Federal Reserve and the state banking regulators have the general authority to limit the dividends paid by insured banks if the payment is deemed an unsafe and unsound practice. Both the state banking regulators and the Federal Reserve have indicated that paying dividends that deplete a bank’s capital base to an inadequate level would be an unsound and unsafe banking practice. In addition, we are subject to certain regulatory requirements to maintain capital at or above regulatory minimums. These regulatory requirements regarding capital affect our dividend policies. In addition, bank holding companies should generally pay dividends only if the organization’s net income available to common shareholders over the past year has been sufficient to fully fund the dividends, and the prospective rate of earnings retention appears consistent with the organization’s capital needs, asset quality, and overall financial condition.

          Finally, the Exchange Agreement provides that, until the earlier of December 31, 2011 or such time as the Treasury ceases to own any debt or equity securities of the Company, we must obtain the consent of the Treasury prior to declaring or paying any cash dividend of more than $0.006 per share of our Common Stock.

CAPITALIZATION AND PRO FORMA FINANCIAL INFORMATION

          The following tables contain certain financial information as of September 30, 2010 and for the nine month period ended September 30, 2010 and the twelve-month period ended December 31, 2009:

•

on an actual basis; and

•

on a pro forma, as adjusted, basis to give effect to the remaining transactions under the Company’s Recapitalization Plan. The remaining transactions include the Second Closing under the Private Placement and the Rights Offering.

          These tables should be read together with our consolidated historical financial statements and Management’s Discussion and Analysis, which appear on pages F-1 and S-48, respectively, and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009, as amended, Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2010, as amended, Quarterly Report on Form 10-Q for the fiscal quarter June 30, 2010, and our Quarterly Report on Form 10-Q for the fiscal quarter September 30, 2010, which are incorporated herein by reference herein.

Pro Forma Balance Sheet
As of September 30, 2010
($ in thousands, except per share amounts)

		September 30, 2010								September 30, 2010
		As Reported				Adjustments				As Adjusted
Cash and cash equivalent		$	690,993			$	60,000	(1)			720,993
Securities available for sale			190,159								190,159
Loans			2,135,811								2,135,811
Less: allowance for loan losses			(163,253	)							(163,253	)
Net loans			1,972,558								1,972,558
Other assets			243,862								243,862
Total assets		$	3,067,572			$	60,000			$	3,127,572
Deposits			2,593,110								2,593,110
Other borrowings			268,872								268,872
Other liabilities			37,047								37,047
Total Liabilities			2,899,029				—				2,899,029
Common Stock			6,847				1,500				8,347
Additional paid in capital			411,489				58,500				469,989
Retained earnings			(253,617	)							(253,617	)
Other			3,824								3,824
Total shareholders’ equity			168,543				60,000				228,543
Total liabilities and shareholders’ equity		$	3,067,572				60,000			$	3,127,572

Pro Forma Income Statement
For the year ended December 31, 2009
(in thousands, except per share amounts)

		As Reported				Adjustments				Pro Forma
Interest income		$	149,445			$	120	(2)		$	149,565
Interest expense			44,294								44,294
Net interest income			105,151				120				105,271
Provision for loan losses			134,223								134,223
Net interest income after provision for loan losses			(29,072	)			120				(28,952	)
Noninterest income			22,325								22,325
Noninterest expenses			170,795								170,795
Income (loss) before provision for income taxes			(177,542	)			120				(177,422	)
Income tax expense			23,908								23,908
Net income (loss)			(201,450	)			120				(201,330	)
Preferred stock dividends and accretion of discount			8,689								8.689
Net income (loss) available to common shareholders		$	(210,139	)			120			$	(210,019	)
Earnings (loss) per share (basic)		$	(9.63	)						$	(1.22	)
Earnings (loss) per share (fully diluted)		$	(9.63	)						$	(1.22	)

Pro Forma Income Statement
For the 9 months ended September 30, 2010
(in thousands, except per share amounts)

		As Reported				Adjustments				Pro Forma
Interest income		$	93,616				90	(3)		$	93,706
Interest expense			36,043								36,043
Net interest income			57,573				90				57,663
Provision for loan losses			183,935								183,935
Net interest income after provision for loan losses			(126,362	)			90				(126,272	)
Noninterest income			16,887								16,887
Noninterest expenses			68,814								68,814
Loss before provision for income taxes			(178,289	)			90				(178,199	)
Income tax expense			(2,219	)							(2,219	)
Net (loss)			(176,070	)			90				(175,980	)
Preferred stock dividends and accretion of discount			(110,908	)							(110,908	)
Net income (loss) available to common shareholders		$	(65,162	)			90			$	(65,072	)
Earnings (loss) per share (basic)		$	(2.65	)						$	(0.37	)
Earnings (loss) per share (fully diluted)		$	(2.65	)						$	(0.37	)

SUMMARY CONSOLIDATED FINANCIAL DATA

          The information at and for the years ended December 31, 2005 through 2009 is derived in part from, and should be read together with, our audited consolidated financial statements and accompanying notes incorporated by reference into this Prospectus. The information at and for the nine months ended September 30, 2010 and 2009 is unaudited. In the opinion of our management, all adjustments consisting of normal recurring adjustments necessary for a fair presentation of the results of operations for the unaudited periods have been made. The operating data for the nine months ended September 30, 2010 are not necessarily indicative of the results that might be expected for the year.

     The financial information presented below has been derived from our audited consolidated year-end financial statements and unaudited interim financial statements. This information should be read together with our consolidated historical financial statements and management’s discussion and analysis included in our Annual Report on Form 10-K for the year ended December 31, 2009, as amended, and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2010, as amended, June 30, 2010, and September 30, 2010, which have been filed with the SEC.

     Note that years 2005 through 2007 do not include the operations of Gateway or Shore. Year 2008 includes the operations of Shore after June 1, 2008, but not Gateway.

										As of				As of				As of				As of				As of
		As of Sept				As of Sept				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
(Dollars, in thousands)		30, 2010				30, 2009				2009				2008				2007				2006				2005
Selected Financial Data:
Total Assets		$	3,067,572			$	2,938,994			$	2,919,576			$	3,085,711			$	563,828			$	476,299			$	409,517
Loans			2,101,085				2,514,789				2,426,692				2,599,526				477,149				375,044				285,330
Investment securities (including restricted equity securities)			190,159				131,524				190,841				177,432				47,081				59,545				73,826
Goodwill and intangibles			11,353				66,033				12,839				98,367				—				—				—
Deposits			2,593,110				2,314,293				2,495,040				2,296,146				431,457				363,261				327,447
Borrowings			268,872				315,177				277,469				429,588				53,000				38,000				30,500
Total Preferred Stockholders’ equity			—				134,605				134,970				133,542				—				—				—
Total Common Stockholders’ equity			168,543				151,704				(9,957	)			211,267				73,660				70,163				49,131
Total shareholders’ equity			168,543				286,309				125,013				344,809				73,660				70,163				49,131
Tangible common equity			157,190				85,671				(22,796	)			112,900				73,660				70,163				49,131
Allowance for loan losses			163,253				99,178				132,697				51,218	(1)			5,043				3,911				3,597

		For the Period Ended								For the Period Ended				For the Period Ended				For the Period Ended				For the Period Ended				For the Period Ended
		Sept. 30,				For the Period Ended				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
(Dollars in thousands, except per share data)		2010				Sept. 30, 2009				2009				2008				2007				2006				2005
Selected Operating Data:
Total interest and dividend income		$	93,616			$	114,647			$	149,445			$	45,177			$	38,203			$	30,021			$	24,558
Total interest expense			36,043				36,197				44,294				17,917				14,016				9,123				5,869
Net interest income			57,573				78,450				105,151				27,260				24,187				20,898				18,689
Provision for loan losses			183,935				68,557				134,223				1,418				1,232				180				486
Non-interest income			16,887				19,327				22,325				5,980				3,440				3,398				3,214
Non-interest expense			68,814				91,884				170,795				20,987				15,994				14,946				13,040
Income taxes (benefit)			(2,219	)			(13,425	)			23,908				3,660				3,590				3,134				2,870
Income (loss) before cumulative effect of change accounting principle			—				—				—				—				—				—				—
Net income (loss)			(176,070	)			(49,239	)			(201,450	)			7,175				6,811				6,036				5,507
Less: Cumulative Preferred Stock dividend and accretion			(112,114	)			7,319				8,689				—				—				—				—
Net income (loss) available to common shareholders			(64,539	)			(56,558	)			(210,139	)		$	7,175			$	6,811			$	6,036			$	5,507
Per Share Data:
Dividends per share			—			$	0.22			$	0.22			$	0.44			$	0.43			$	0.50			$	0.36
Basic earnings (loss) per share			(2.63	)			(2.60	)			(9.63	)			0.60				0.67				0.66				0.68
Diluted earnings (loss) per share			(2.63	)			(2.60	)			(9.63	)			0.59				0.65				0.65				0.66
Tangible book value per common share			.23				3.92				(1.03	)			5.18				7.14				6.84				5.96
Basic weighted average shares			24,546,337				21,774,620				21,816,407				11,960,604				10,228,638				9,092,980				8,137,244
Diluted weighted average shares outstanding			24,546,337				21,774,620				21,816,407				12,074,725				10,431,554				9,275,788				8,407,821
Common shares outstanding			684,680,352				21,868,956				22,154,320				21,777,937				10,314,899				10,251,336				8,242,822

										As of, and for the				As of, and for the				As of, and for the				As of, and for the				As of, and for the
		As of, and for the				As of, and for the				Period				Period				Period				Period				Period
Selected		Period				Period				Ended,				Ended,				Ended,				Ended,				Ended,
Operating Ratios		Ended,				Ended,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,				Dec. 31,
and Other Data:		Sept. 30, 2010				Sept. 30, 2009				2009				2008				2007				2006				2005
Performance Ratios:
Return on average assets			(2.99	)%			(2.45	)%			(6.84	)%			0.95	%			1.31	%			1.39	%			1.44	%
Return on average common equity		NM					(35.39	)			(115.38	)			7.63				9.52				10.47				12.28
Interest rate spread			3.18				3.52				3.81				3.17				3.71				4.10				4.41
Net interest margin			3.10				3.75				3.95				3.89				4.95				5.20				5.26
Noninterest income to total net revenue			22.68				19.77				17.51				17.99				12.45				13.99				14.67
Noninterest expense (annualized) to average assets			3.19				3.99				5.56				2.76				3.08				3.45				3.41
Efficiency ratio			92.42				93.97				138.63				63.14				57.89				61.52				59.54
Dividend payout ratio											—				73.33				64.18				75.76				52.94
Asset Quality Ratios:
Nonperforming loans to total loans			15.56				6.98				10.23				1.39				0.55				0.43				0.64
Loans more than 90 days past due and still accruing interest to total loans			—				[—]				—				0.12				0.18				—				0.01
Nonaccrual loans to total loans			15.56				6.98				10.23				1.27				0.38				0.43				0.63
Nonperforming assets to total assets (1)			11.91				6.28				8.81				1.34				0.47				0.34				0.44
Net loans charged-off (recovered) to average total loans			7.77				.80				(2.06	)			(0.04	)			(0.02	)			0.04				0.01
Allowance for loan losses to total loans			7.77				3.94				5.47				1.97				1.06				1.04				1.26
Allowance for loan losses to nonperforming loans			49.94				56.47				53.44				141.86				190.69				239.94				197.53
Share Data:
Book value per common share			.25				6.94			$	(0.45	)		$	9.70			$	7.14			$	6.84			$	5.96
Market price at period end			0.91				2.88				1.73			$	8.73			$	12.56			$	12.00			$	10.65
Other Data:
Number of bank financial centers			60				62				60				65				17				17				17
Full time equivalent employees			682				696				699				721				182				176				175

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion provides additional information about the important factors affecting our consolidated results of operations, financial condition, capital resources and liquidity. In addition to identifying trends and material changes that occurred during the reporting periods, this Prospectus depicts the successes achieved by the organization. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying notes.

Overview

Throughout 2009 and into the first nine months of 2010, economic conditions in the markets in which our borrowers operate continued to deteriorate and the levels of loan delinquencies and defaults that we experienced were substantially higher than historical levels. Our loan customers continue to operate in an economically stressed environment. The Company reported a net loss for the nine-month period ended September 30, 2010, primarily as a result of a significant increase to our provision for loan losses. Additionally, the Company determined that a valuation allowance on its deferred tax assets should be recognized beginning as of December 31, 2009. Management believes the Company, Bank of Hampton Roads, and Shore Bank to be “well-capitalized” under applicable banking regulations as of September 30, 2010.

Our primary source of revenue is net interest income earned by our bank subsidiaries. Net interest income represents interest and fees earned from lending and investment activities, less the interest paid on deposits and borrowings. Net interest income may be impacted by variations in the volume and mix of interest-earning assets and interest-bearing liabilities, changes in the yields earned and the rates paid, level of non-performing interest-earning assets, and the levels of noninterest-bearing liabilities available to support earning assets. Our net interest income in recent years has been negatively impacted by increasing levels of non-performing loans. In addition to net interest income, noninterest income is another important source of revenue. Noninterest income is derived primarily from service charges on deposits and fees earned from bank services, investment, mortgage, and insurance activities. Other factors that impact net income are the provision for loan losses, noninterest expense, and the provision for income taxes.

The following is a summary of our condition as of September 30, 2010 and our financial performance for the three and nine month period then ended.

•

Assets were $3.1 billion. They increased by $148.0 million or 5% for the first nine months of 2010 from December 31, 2009. This was primarily the result of an increase in overnight funds sold and due from Federal Reserve Bank of 4% offset by a 13% decrease in loans during that period.

•

Investment securities available for sale increased $7.7 million to $168.8 million for the first nine months of 2010. Investments purchased during 2010 were low-risk weighted mortgage-backed and agency securities.

•

Loans decreased by $325.6 million or 13% for the nine months ended September 30, 2010 as loan paydowns and charge-offs exceeded the volume of new originations. New loan activity continues to be low as a result of our tighter underwriting criteria and economic conditions.

•

Deposits increased $98.1 million or 4% as new customer deposit activity including national rate board deposits more than offset the decline in brokered deposits.

•

During the quarter ended September 30, 2010, the Company completed a stock offering in which 587,500,000 new shares of Common Stock were issued at $0.40 per share for an infusion of $210.0 million of capital net of $25.0 million in issuance costs. In connection with this capital raise, existing preferred stock was converted to Common Stock creating income to common shareholders of $111.7 million. All preferred stock was exchanged for or converted into Common Stock in the third quarter so this type of income will not reoccur in the future.

•

Net income available to common shareholders for the three months ended September 30, 2010 was $30.0 million or $1.02 per common diluted share, and net loss available to common shareholders for the nine months ended September 30, 2010 was $64.5 million or $2.63 per common diluted share, respectively, as compared with net loss available to common shareholders of $14.7 million or $0.68 per common diluted share and $56.6 million or $2.60 per common diluted share for the three and nine months, respectively, ended September 30, 2009.

•

The net loss of $176.7 million for the nine months ended September 30, 2010 was primarily attributable to provision for loan losses expense of $183.9 million.

•

Net interest income decreased $8.5 million and $20.9 million for the three and nine months, respectively, ended September 30, 2010 as compared to the same period in 2009. This was primarily the result of the decrease in interest income from loans.

•

Noninterest income for the three and nine months ended September 30, 2010 was $6.0 million and $16.9 million, respectively, an 17% and 13% decrease over the comparative periods in 2009. An increase in mortgage banking revenue partially offset the increased losses on foreclosed assets.

•

Noninterest expense was $24.8 million and $68.8 million for the three and nine months, respectively, ended September 30, 2010, which was an increase of $3.1 million or 14% and a decrease of $23.1 million or 25% over the comparable periods for 2009.

Critical Accounting Policies

GAAP requires management to apply significant judgment to various accounting, reporting, and disclosure matters. Management must use assumptions, judgments, and estimates when applying these principles where precise measurements are not possible or practical. These policies are critical because they are highly dependent upon subjective or complex judgments, assumptions, and estimates. Changes in such judgments, assumptions, and estimates may have a significant impact on the consolidated financial statements and the accompanying footnotes. Actual results, in fact, could differ from those estimates. We consider our policies on allowance for loan losses, deferred income taxes, and estimates of fair value on financial instruments to be critical accounting policies. Refer to our 2009 Form 10-K, as amended, for further discussion of these policies.

Material Trends and Uncertainties

The global and U.S. economies have experienced a protracted slowdown in business activity, including high levels of unemployment, resulting in a lack of confidence in the worldwide credit markets and in the financial system. Currently, the U.S. economy appears to be slowly recovering from one of its longest economic recessions in recent history. It is not clear at this time how quickly the economy will recover and whether regulatory and legislative efforts to stimulate job growth and spending will be successful.

We experienced a significant deterioration in credit quality in 2009 that continues into 2010. Problem loans and non-performing assets rose and led us to significantly increase the allowance for loan losses. To bolster our allowance, we increased the provision for loan losses to $183.9 million in the first nine months of 2010 from $68.6 million in the first nine months of 2009. The increased expense contributed to a net loss available to common shareholders of $64.5 million for the first nine months of 2010. In light of continued economic weakness, problem credits may continue to rise and significant additional provisions for loan losses may be necessary to supplement the allowance for loan losses in the future. As a result, we may incur significant credit costs throughout 2010, which would continue to adversely impact our financial condition, our results of operations, and the value of our Common Stock.

The Company determined that a valuation allowance on its deferred tax assets should be recognized beginning December 31, 2009 because it is uncertain whether it will realize this asset. Section 382 limitations related to the capital raised during the quarter ended September 30, 2010 add further uncertainty to the realizability of the deferred tax assets in future periods.

On November 2, 2010, the Company received from the United States Department of Justice, Criminal Division a grand jury subpoena to produce information principally relating to the merger of Gateway Financial Holdings, Inc. into the Company on December 31, 2008 and to loans made by Gateway Financial Holdings, Inc. and its wholly-owned subsidiary Gateway Bank & Trust before Gateway Financial Holdings, Inc.’s merger with the Company. The United States Department of Justice, Criminal Division has informed the Company that it is not a target of the investigation at this time, and we are fully cooperating. Although we do not believe this matter will have a material adverse affect on the Company, we can give you no assurances as to the timing or eventual outcome of this investigation.

Analysis of Financial Condition

Cash and Cash Equivalents. Cash and cash equivalents includes cash and due from banks, interest-bearing deposits in other banks, and overnight funds sold and due from the Federal Reserve Bank. Cash and cash equivalents are used for daily cash management purposes, management of short-term interest rate opportunities, and liquidity. Cash and cash equivalents as of September 30, 2010 were $661.0 million and consisted mainly of deposits with the Federal Reserve Bank. These deposits increased $461.0 million in the first nine months of 2010 from $200.0 million at December 31, 2009 as the Company increased deposits and decreased loan balances resulting in increased cash balances. The Company elected to maximize liquidity by investing the increased cash in overnight funds at the Federal Reserve Bank. In addition, the Company received $235.0 million in gross cash proceeds from its recapitalization.

Securities. Our investment portfolio consists primarily of available-for-sale mortgage-backed securities. Our available-for-sale securities are reported at estimated fair value. They are used primarily for liquidity, pledging, earnings, and asset/liability management purposes and are reviewed quarterly for possible impairment. The mortgage-backed securities consisted of Government National Mortgage Association pass-through securities or collateralized mortgage obligations.

At September 30, 2010, the estimated fair value of our investment securities was $168.8 million, an increase of $7.7 million or 5% from $161.1 million at December 31, 2009. Our investment portfolio was restructured during late 2009 to increase regulatory capital ratios by selling high risk-weighted securities and reinvesting the proceeds into lower risk-weighted securities.

Loan Portfolio. Our loan portfolio is comprised of commercial, construction, real estate-commercial mortgage, real estate-residential mortgage, and installment loans to individuals.

Lending decisions are based upon an evaluation of the repaying capacity, financial strength, and credit history of the borrower, the quality and value of the collateral securing each loan, and the financial strength of guarantors. With few exceptions, personal guarantees are required on loans. Our loan portfolio decreased $325.6 million or 13% to $2.1 billion as of September 30, 2010 compared to December 31, 2009. Commercial loans decreased 12% to $317.6 million at September 30, 2010 compared with $361.3 million at December 31, 2009. Real estate commercial mortgages decreased 8% to $677.8 million at September 30, 2010 compared to $740.6 million at December 31, 2009. Real estate residential mortgages decreased 3% to $511.2 million at September 30, 2010 as compared with $524.9 million at December 31, 2009. Installment loans to individuals decreased 19% to $34.7 million at September 30, 2010 compared with $42.9 million at December 31, 2009. Construction loans also decreased 26% to $560.2 million at September 30, 2010 as compared with $757.7 million at December 31, 2009, thus lowering the concentration of construction loans to 27% of the total loan portfolio at September 30, 2010 compared with 31% at December 31, 2009.

Within the construction segment of the loan portfolio as of September 30, 2010, Bank of Hampton Roads has exposure to $57.5 million of loans in which interest payments are satisfied through the use of a reserve that was funded by Bank of Hampton Roads upon origination and represents a portion of the borrower’s total liability to Bank of Hampton Roads. In the instance of commercial construction, ultimate repayment is dependent upon stabilization of the funded project; whereas, in residential development, Bank of Hampton Roads is assigned a certain percentage of each sale to retire a commensurate portion of the outstanding debt. Each interest reserve transaction is monitored by the account officer, a senior credit officer, and credit administration to verify the continuation of project viability as it relates to remaining interest reserve and additional financial capacity of the project sponsor. In certain instances, where either or both criteria have been deemed unsatisfactory, the borrower’s access to any remaining interest reserve has been curtailed on at least a temporary basis until Bank of Hampton Roads’ special assets department has been engaged to further evaluate possible resolutions.

Although we are no longer making new loans to finance construction and land development, we have a high concentration of construction and real estate, both commercial and residential, loans. Construction loans have been made to individuals and businesses for the purpose of construction of single family residential properties, multi-family properties, and commercial projects such as the development of residential neighborhoods and commercial office parks. Risk is reduced on these loans by limiting lending for speculative building of both residential and commercial properties based upon the borrower’s history with us, financial strength, and the loan-to-value ratio of such speculative property. We generally require new and renewed variable-rate commercial loans to have interest rate floors. Residential loans represent smaller dollar loans to more customers, and therefore, have lower credit risk than other types of loans. The majority of our fixed-rate residential mortgage loans, which represent increased interest rate risk, as well as some variable rate mortgage loans are sold in the secondary market. The remainder of the variable-rate mortgage loans and a small number of fixed-rate mortgage loans are retained.

Allowance for Loan Losses. The purpose of the allowance for loan losses is to provide for probable losses inherent in our loan portfolio. Management regularly reviews our loan portfolio to determine whether adjustments are necessary. Our review takes into consideration changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, and review of current economic conditions that may affect the borrower’s ability to repay. In addition to the review of credit quality through ongoing credit review processes, we construct a comprehensive allowance analysis for our loan portfolio at least quarterly. This allowance includes specific allowances for individual loans; general allowance for loan pools, which factor in our historical loan loss experience, loan portfolio growth and trends, and economic conditions; and unallocated allowances predicated upon both internal and external factors.

The allowance for loan losses was $163.3 million or 7.77% of outstanding loans as of September 30, 2010 compared with $132.7 million or 5.47% of outstanding loans as of December 31, 2009. We increased the allowance for loan losses $30.6 million (net of charge-offs and recoveries) during the first nine months of 2010. Pooled loan allocations increased to $53.1 million at September 30, 2010 from $34.1 million at December 31, 2009. Allowance coverage for the non-impaired portfolio is determined using a methodology that incorporates historical loss rates and risk ratings by loan category. Loss rates are based on a three-year weighted average with recent period loss rates weighted more heavily. We then apply an adjustment factor to each loss rate based on assessments of loss trends, collateral values, and economic and business influences impacting expected losses. During the quarter, the weighted historical loss rates for most loan categories increased due to recent charge-off activity resulting in an increase in the loss factors for most loan types and an increase in pooled loan allocations. Specific loan allocations increased to $101.1 million at September 30, 2010 from $91.5 million at December 31, 2009. Specific loan allocations increased due to a decrease in collateral values of certain collateral dependent loans and due to the estimated losses of recently identified impaired loans. Unallocated allowances increased to $9.1 million at September 30, 2010 from $7.2 million at December 31, 2009. The following table provides a breakdown of the allowance for loan losses and other related information (in thousands) at September 30, 2010 and December 31, 2009.

		September 30,				December 31,
		2010				2009
Allowance for loan losses:
Pooled component		$	53,057			$	34,050
Specific component			101,127				91,488
Unallocated component			9,069				7,159
Total		$	163,253			$	132,697
Impaired loans		$	432,466			$	469,068
Non-impaired loans			1,668,619				1,957,624
Total loans		$	2,101,085			$	2,426,692
Pooled component as % of non-impaired loans			3.18	%			1.74	%
Specific component as % of impaired loans			23.38	%			19.50	%
Allowance as a % of loans			7.77	%			5.47	%
Allowance as a % of nonaccrual loans			49.94	%			53.44	%

The specific allowance for loan losses necessary for impaired loans is based on a loan-by-loan analysis and varies between impaired loans largely due to the level of collateral. Additionally, pooled loan allocations vary depending on a number of assumptions and trends. As a result, the ratio of allowance for loan losses to nonaccrual loans is not sufficient for measuring the adequacy of the allowance for loan losses. The following table provides additional ratios that measure our allowance for loan losses.

		September 30, 2010				December 31, 2009
Non-performing loans for which full loss has been charged off to total loans			3.17	%			0.91	%
Non-performing loans for which full loss has been charged off to non-performing loans			20.35	%			8.91	%
Charge off rate for nonperforming loans which the full loss has been charged off			52.32	%			42.46	%
Coverage ratio net of nonperforming loans for which the full loss has been charged off			62.69	%			58.67	%
Total allowance divided by total loans less nonperforming loans for which the full loss has been charged off			8.02	%			5.52	%
Allowance for individually impaired loans divided by impaired loans for which an allowance has been provided			32.63	%			27.60	%

A loan is considered impaired when it is probable that all amounts due will not be collected according to the contractual terms. Subsequent recoveries, if any, are credited to the allowance. Impairment is evaluated in the aggregate for smaller balance loans of similar nature and on an individual loan basis for other loans. If a loan is considered impaired, it is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. Total impaired loans were $432.5 million at September 30, 2010, a decrease of $36.6 million or 8% over December 31, 2009. Of these loans, $326.9 million were on nonaccrual status at September 30, 2010. Net charge-offs were $153.4 million for the nine months ended September 30, 2010 as compared with $20.6 million for the nine months ended September 30, 2009.

Non-Performing Loans. Non-performing loans consist of nonaccrual loans and loans 90 days past due and still accruing interest. There were no loans 90 days past due and still accruing interest as of September 30, 2010 and December 31, 2009. Total nonaccrual loans aggregated $326.9 million at September 30, 2010 as compared with $248.3 million at December 31, 2009.

The following chart summarizes our nonaccrual loans by loan type as of September 30, 2010 and December 31, 2009 (in thousands).

		September 30, 2010				December 31, 2009
Commercial		$	24,860			$	24,803
Construction			199,042				150,325
Real estate — commercial mortgage			66,387				50,858
Real estate — residential mortgage			35,842				22,146
Installment loans (to individuals)			779				171
Total nonaccrual loans		$	326,910			$	248,303

Deposits. Deposits are the primary source of funding for the Company. Total deposits at September 30, 2010 increased $98.1 million or 4% to $2.6 billion as compared with December 31, 2009. Total brokered deposits were $191.4 million or 7% of deposits at September 30, 2010, which was a decrease of $195.0 million from the total brokered deposits of $386.4 million or 15% of deposits at December 31, 2009. Interest-bearing demand deposits included $17.3 million brokered money market funds at

September 30, 2010, which was $30.3 million lower than the $47.6 million balance of brokered money market funds outstanding at December 31, 2009. Brokered CDs represented $174.1 million, which was a decrease of $164.7 million over the $338.8 million of brokered CDs outstanding at December 31, 2009. Changes in the deposit categories include an increase of $3.4 million or 1% in noninterest-bearing demand deposits, a decrease of $145.5 million or 16% in interest-bearing demand deposits, and a decrease of $9.8 million or 12% in savings accounts from December 31, 2009 to September 30, 2010. Total time deposits under $100 thousand decreased $111.6 million from $889.8 million at December 31, 2009 to $778.2 million at September 30, 2010. Time deposits over $100 thousand increased $361.6 million from $356.8 million at December 31, 2009 to $718.4 million at September 30, 2010 primarily due to certificates of deposit obtained from the national rate board postings during the nine months ended September 30, 2010. Going forward, management intends to focus on core deposit growth as our primary source of funding.

Borrowings. We use short-term and long-term borrowings from various sources including the FHLB, funds purchased from correspondent banks, reverse repurchase accounts, and trust preferred securities. Our FHLB borrowings on September 30, 2010 were $219.2 million compared to $228.2 million at December 31, 2009.

Capital Resources. Total shareholders’ equity increased $43.5 million or 35% to $168.5 million at September 30, 2010 compared to $125.0 million at December 31, 2009. The increase in shareholders’ equity was primarily a result of the $235.0 million capital infusion partially offset by the $176.7 million net loss for the nine months ended September 30, 2010.

During 2009, we paid two quarterly cash dividends of $0.11 per share on our Common Stock to shareholders of record as of February 27, 2009 and May 15, 2009. To preserve capital, on July 30, 2009 the Board of Directors voted to suspend the quarterly dividend on the Company’s Common Stock. Our ability to distribute cash dividends in the future may be limited by regulatory restrictions and the need to maintain sufficient consolidated capital.

In January 2010, the Company exercised its right to defer all quarterly distributions on the trust preferred securities (in thousands) it assumed in connection with its merger with GFH (collectively, the “Trust Preferred Securities”), which are identified below.

		Amount				Interest		Redeemable		Mandatory
		(in thousands)				Rate		On Or After		Redemption
Gateway Capital Statutory Trust I		$	8,000			LIBOR + 3.10%		September 17, 2008		September 17, 2033
Gateway Capital Statutory Trust II			7,000			LIBOR + 2.65%		July 17, 2009		June 17, 2034
Gateway Capital Statutory Trust III			15,000			LIBOR + 1.50%		May 30, 2011		May 30, 2036
Gateway Capital Statutory Trust IV			25,000			LIBOR + 1.55%		July 30, 2012		July 30, 2037

Interest payable under the Trust Preferred Securities continues to accrue during the deferral period and interest on the deferred interest also accrues, both of which must be paid at the end of the deferral period and totaled $1.1 million at September 30, 2010. Prior to the expiration of the deferral period, the Company has the right to further defer interest payments, provided that no deferral period, together with all prior deferrals, exceeds 20 consecutive quarters and that no event of default (as defined by the terms of the applicable Trust Preferred Securities) has occurred and is continuing at the time of the deferral. The Company was not in default with respect to the terms of the Trust Preferred Securities at the time the quarterly payments were deferred and such deferrals did not cause an event of default under the terms of the Trust Preferred Securities.

We have taken additional actions to preserve capital. As part of a plan to recapitalize the Company, on August 11, 2010, the Investors and the Company entered into the Investment Agreements to purchase 637,500,000 shares of Common Stock for $0.40 per share as part of the aggregate $255.0 million Private Placement. See “Questions and Answers Relating to the Offering — Why are we conducting the Rights Offering?” beginning on page S-7 of this Prospectus and “Prospectus Summary — Recent Developments — Implementation of the Initial Portion of our Recapitalization Plan” beginning on page S-16 of this Prospectus. Prior to the First Closing of the Private Placement, the Company was required to conduct offers to exchange each outstanding share of Series A and Series B preferred stock for Common Stock and conduct a separate exchange offer with the Treasury.

On September 29, 2010, the Company completed Exchange Offers with holders of the Company’s previously outstanding Series A and Series B preferred stock, resulting in the issuance of 375 newly issued shares of Common Stock for each such share of preferred stock tendered. Of the 23,266 previously outstanding shares of Series A preferred stock and 37,550 previously outstanding shares of Series B preferred stock, all but 2,200 Shares of Series A preferred stock and 200 shares of Series B preferred stock were tendered in the Exchange Offers, resulting in the issuance of 21,906,000 shares of Common Stock on September 29, 2010.

Pursuant to amendments to the series designations of the Series A and B preferred holders approved by shareholders on September 28, 2010, on September 30, 2010, the Company sent irrevocable conversion notices to all remaining holders of shares of Series A and Series B preferred stock not tendered in the Exchange Offers. Upon conversion, each share of Series A and Series B preferred stock was automatically cancelled and converted into the right to receive 375 common shares upon delivery of the Series A and Series B preferred stock certificates to the Company, for an aggregate issuance of 900,000 common shares.

In addition, the Investment Agreements required the exchange of the 80,347 shares of Series C preferred stock held by the Treasury for shares of a newly-created Series C-1 preferred stock and the conversion of such Series C-1 preferred shares into 52,225,550 shares of Common Stock prior to the First Closing of the Private Placement, which occurred on September 30, 2010. As a part of this series of transactions, the terms of the warrant held by Treasury were amended to provide for the purchase of up to 1,325,858 shares of Common Stock at an exercise price of $0.40 per share for a ten-year term following the issuance of the amended warrant.

The Investment Agreements also require that following the First Closing, the Company will commence a Rights Offering providing holders of Common Stock with a non-transferable right to purchase newly issued shares of Common Stock at $0.40 per share, the same price paid by the Investors and Treasury. The Rights Offering is expected to raise an additional $40 million.

On September 30, 2010, the Company issued $235.0 million worth of common shares, or 587,500,000 shares, at a price of $0.40 per share. The remaining $20 million of the Private Placement is expected to close by the fourth quarter of 2010 contemporaneously with the Rights Offering.

We are subject to regulatory risk-based capital guidelines that measure capital relative to risk-weighted assets and off-balance sheet financial instruments. Tier I capital is comprised of shareholders’ equity, net of unrealized gains or losses on available-for-sale securities, less intangible assets, while total risk-based capital adds certain debt instruments and qualifying allowances for loan losses. As of September 30, 2010, our consolidated regulatory capital ratios are Tier 1 Leverage Ratio of 6.32%, Tier 1 Risk-Based Capital Ratio of 9.43%, and Total Risk-Based Capital of 10.77%. As of September 30, 2010, we believe the Company, Bank of Hampton Roads, and Shore Bank to be “well-capitalized” under applicable banking regulations.

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet our customers’ financing needs. For more information on our off-balance sheet arrangements, see Note 15, Financial Instruments with Off-Balance-Sheet Risk, of the Notes to Consolidated Financial Statements contained in the 2009 Form 10-K, as amended.

Contractual Obligations. Our contractual obligations consist of time deposits, borrowings, and operating lease obligations. There have not been any significant changes in our contractual obligations from those disclosed in the 2009 Form 10-K, as amended.

Analysis of Results of Operations

Overview. Our net income available to common shareholders for the three months ended September 30, 2010 was $30.0 million as compared with net loss available to common shareholders of $14.7 million for the three months ended September 30, 2009. During the first nine months of 2010, we incurred a net loss available to common shareholders of $64.5 million, compared to the net loss available to common shareholders of $56.6 million for the first nine months of 2009. The loss available to common shareholders for the nine months ended September 30, 2010 was driven by provision for loan losses expense of $183.9 million necessary to maintain the allowance for loan losses at a level necessary to cover expected losses inherent in the loan portfolio partially offset by the benefit to common shareholders from the exchange and conversion of preferred stock to Common Stock which added $111.7 million of income available to common shareholders. Diluted income per common share for the three months was $1.02 and diluted loss per common share for the nine months ended September 30, 2010 was $2.63, an increased gain of $1.70 over the diluted loss per common share of $0.68 for the three months ended September 30, 2009 and an increased loss of $0.03 over the diluted loss per common share of $2.60 for the three months ended September 30, 2009.

Net Interest Income. Net interest income, a major component of our earnings, is the difference between the income generated by interest-earning assets reduced by the cost of interest-bearing liabilities. Net interest income for the three months ended September 30, 2010 was $17.9 million, a decrease of $8.5 million from the three months ended September 30, 2009. Net interest income for the nine months ended September 30, 2010 was $57.6 million, a decrease of $20.9 million from the nine months ended September 30, 2009. The decrease in net interest income was primarily the result of a decrease in interest income from loans of $21.7 million for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. The net interest margin, which is calculated by expressing annualized net interest income as a percentage of average interest-earning assets, is an indicator of effectiveness in generating income from earning assets. Our net interest margin decreased to 3.10% for the first nine months ended September 30, 2010 from 3.75% during the first nine months of 2009. The net interest margin was 2.90% for the three months ended September 30, 2010 compared to 3.80% for the three months ended September 30, 2009. The decline in net interest margin from prior periods is due primarily to increased levels of nonaccrual loans and the effect of purchase accounting adjustments which inflated net interest income and subsequently net interest margin in 2009.

Our interest-earning assets consist of loans, investment securities, overnight funds sold and due from Federal Reserve Bank, and interest-bearing deposits in other banks. Interest income on loans, including fees, decreased $8.2 million and $21.7 million to $27.7 million and $88.1 million for the three and nine months, respectively, ended September 30, 2010, as compared to the same time periods during 2009. These decreases were a result of decreases in average loan balances and an increase in nonaccrual loans.

Interest income on investment securities increased $111 thousand and $192 thousand for the three and nine months, respectively, ended September 30, 2010 compared to the same time period during 2009. Interest income on interest-bearing deposits in other banks decreased $9 thousand and $200 thousand for the three and nine month periods, respectively, ended September 30, 2010 compared to the same time period during 2009. Interest income on overnight funds sold and due from Federal Reserve Bank increased $208 thousand and $462 thousand for the three and nine months, respectively, ended September 30, 2010 compared to the same time period during 2009. During 2010, as loan balances decreased and deposit balances increased, the Company elected to maximize liquidity by increasing its deposit balance at the Federal Reserve Bank.

Our interest-bearing liabilities consist of deposit accounts and borrowings. Interest expense on deposits increased $901 thousand and $1.8 million to $9.4 million and $29.7 million for the three and nine months, respectively, ended September 30, 2010 compared to the same time periods during 2009. This increase resulted from a $284.8 million increase in average interest-bearing deposits, offset by an 11-basis point decrease in the average interest rate on deposits for the nine months ended September 30, 2010 compared to the nine months ended September 30, 2009. This decrease in our average deposit rates resulted in large part from declining rates on certificates of deposits and savings deposits. A reduction of our average rate on time deposits to 1.91% for the first nine months of 2010 from 2.31% for the first nine months of 2009 contributed significantly toward the decrease in overall deposit rates. Interest expense on borrowings, which consisted of FHLB borrowings, other borrowings, and overnight funds purchased decreased $259 thousand and $2.0 million for the three and nine months, respectively, ended September 30, 2010 compared to the same time periods during 2009. The $155.4 million decrease in the nine month average borrowings and partially offset by the 51-basis point increase in the average interest rate on borrowings produced this result.

The tables below present the average interest-earning assets and average interest-bearing liabilities, the average yields earned on such assets and rates paid on such liabilities, and the net interest margin for the three months ended September 30, 2010 and 2009 and nine months ended September 30, 2010 and 2009.

		Three Months Ended												Three Months Ended
		September 30, 2010												September 30, 2009												2010 Compared to 2009
						Annualized												Annualized								Interest
						Interest				Average								Interest				Average				Income/				Variance
		Average				Income/				Yield/				Average				Income/				Yield/				Expense				Attributable to
(in thousands)		Balance				Expense				Rate				Balance				Expense				Rate				Variance				Rate				Volume
Assets:
Interest-earning assets
Loans		$	1,879,696			$	109,920				5.85	%		$	2,557,046			$	142,461				5.57	%		$	(32,541	)		$	6,816			$	(39,357	)
Investment securities			197,719				6,204				3.14	%			148,518				5,761				3.88	%			443				(1,234	)			1,677
Interest-bearing deposits in other banks			68,964				162				0.23	%			12,050				40				0.33	%			122				(14	)			136
Overnight funds sold and due from FRB			307,463				736				0.24	%			48,084				67				0.14	%			669				76				593
Total interest-earning assets			2,453,842				117,022				4.77	%			2,765,698				148,329				5.36	%			(31,307	)			5,644				(36,951	)
Noninterest-earning assets			444,642												214,243
Total assets			2,898,484												2,979,941
Liabilities and Shareholders’ Equity:
Interest-bearing liabilities
Interest-bearing demand deposits			791,313				9,415				1.19	%			609,497				5,848				0.96	%			3,567				1,590				1,977
Savings deposits			74,480				467				0.63	%			110,196				908				0.83	%			(441	)			(187	)			(254	)
Time deposits			1,459,547				27,257				1.87	%			1,349,920				26,808				1.99	%			449				(1,653	)			2,102
Total interest-bearing deposits			2,325,340				37,139				1.60	%			2,069,613				33,564				1.62	%			3,575				(250	)			3,825
Borrowings			272,685				8,696				3.19	%			340,363				9,720				2.86	%			(1,024	)			1,052				(2,076	)
Total interest-bearing liabilities			2,598,025				45,835				1.76	%			2,409,976				43,284				1.80	%			2,551				802				1,749
Noninterest-bearing liabilities
Demand deposits			247,682												245,193
Other liabilities			22,359												25,176
Total noninterest-bearing liabilities			270,041												270,369
Total liabilities			2,868,066												2,680,345
Shareholders’ equity			30,418												299,596
Total liabilities and shareholders’ equity		$	2,898,484											$	2,979,941
Net interest income						$	71,187											$	105,045
Net interest spread											3.01	%											3.56	%
Net interest margin											2.90	%											3.80	%